Why is the ASX 200 on a rollercoaster this week?

If you’ve been keeping a close eye on the S&P/ASX 200 Index (ASX: XJO) price charts this week, you’ll be forgiven for reaching for your Dramamine.

Despite taking the day off yesterday for Adelaide Cup Day here in South Australia, I couldn’t help but sneak a few peeks at the intraday market moves. And right around lunchtime, I saw that the ASX 200 was down a precipitous 4.2%.

Was this the start of the much-hyped Iran war-fuelled market crash?

Not so fast!

By market close on Monday, the benchmark index had recouped some of those losses to end the day down 2.9%.

And in late morning trade today, investor sentiment has taken a sharp turn for the better, with the index of the top 200 Aussie stocks up 1.5%.

So, what’s going on?

ASX 200 buffeted on wild energy swings

If you’ve passed by a petrol station this week, you’ll have noticed a steep and unwelcome uptick in prices.

As you’re likely aware, that’s being driven by the ongoing United States and Israeli military strikes against Iran. As well as Iran’s reprisal attacks against its oil-rich neighbours and the essential closure of the vital Strait of Hormuz shipping channel.

This saw the West Texas International (WTI) crude oil price spike to a whopping US$119.50 per barrel in early Monday trade. That’s up from US$57.40 per barrel on 1 January, mind you.

With the world still very much dependent on oil and gas for its energy needs, the rocketing prices saw the ASX 200 tumble on Monday amid investor concerns of rebounding inflation.

Should higher energy prices persist, they have a trickle-down effect on many industries, including travel and transport, where companies and consumers would then also see higher prices. And that in turn could trigger further interest rate hikes from the RBA, the Fed, and central banks the world over.

Why is the benchmark index roaring back today?

Today’s big rebound on the ASX 200 comes amid a sharp retrace in oil prices.

While still well up this year, WTI crude oil is now back to US$87.75 a barrel.

That big fall came after US President Donald Trump sought to reassure investors, and his voting base, that the conflict in Iran would be over “very soon”.

As for surging global oil prices, Trump added (quoted by Bloomberg), “We’re looking to keep the oil prices down. They went artificially up because of this excursion.”

Although virtually no cargo ships are currently sailing through the Strait of Hormuz, Trump sought to reassure markets by promising US Navy escort ships to safeguard oil tankers.

The US president also announced his intention to suspend oil-related sanctions.

Now, I suspect ASX 200 investors should brace for further volatility in the days and weeks ahead. But today’s rebound is a welcome reminder not to get carried away with daily price swings, and to enjoy those days off without sneaking a peek at how your investments are tracking.

Foolish Takeaway

Commenting on Monday’s 2.9% drop in the ASX 200 after market close yesterday, the Motley Fool’s chief investment officer Scott Phillips noted, “The ASX is up 7.4% over the past 12 months, plus probably somewhere around 4% more for dividends. So, let’s call it a total gain of 11.4%, give or take.”

(With today’s intraday gains factored in, the benchmark index is now up 9.6% over the past 12 months, plus those 4% in dividends.)

As for the volatile trading day, Phillips concluded, “It’s not unusual. Volatility is all-too common. I don’t know what comes next. No one does. Instead? Focus on the long term.”

The post Why is the ASX 200 on a rollercoaster this week? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.