The S&P/ASX 200 (ASX: XJO) has fallen to a six-week low. The question is: why?

Australians have decided that interest rates are going up again.

The index lost a flat 1% on Tuesday to finish at 8,920.8 points.

That leaves the market back below 9,000 points and more than 3% below where it traded in mid-August.

What fell on the ASX 200

The damage was not spread evenly across the market.

Consumer discretionary shares were the worst sector by a wide margin, falling 1.88%.

Technology shares dropped 1.76% and financials lost 1.63%.

Listed property fell 1.46%.

Utilities were the only sector to post a meaningful gain, rising 0.59%.

Looking more deeply into this, that pattern seems like a textbook interest rate reaction.

Investors sold anything that depends on household spending and bought the things that behave like bonds.

Consumer sentiment did the damage

The trigger arrived before the market opened.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 5.2% in September to 84.4.

Any reading below 100 means pessimists outnumber optimists, so 84.4 is a weak result.

The report itself was blunt about the cause.

The fall takes sentiment back towards the deeply pessimistic levels seen earlier in the year. Both fuel prices and interest rates again look to be driving the move.

Nearly two-thirds of consumers now expect mortgage rates to rise within twelve months.

Assessments of family finances dropped 9.2%, and among homeowners the fall was 13%.

Westpac then moved its own forecast to a November rate rise, joining ANZ and CommBank.

That followed June quarter national accounts showing the economy growing 0.4% for the quarter and 2.1% over the year.

JB Hi-Fi and Harvey Norman are wearing it

Two retailers show what all of this looks like at the company level.

JB Hi-Fi Ltd (ASX: JBH) shares fell 2.25% on Tuesday to $66.07.

That is a fresh 52-week low, and the shares are now down 42.8% over twelve months.

Harvey Norman Holdings Ltd (ASX: HVN) shares closed flat at $4.32.

They are just above a 52-week low of $4.15 and are down 41.3% over the year.

The FY26 results do not explain those falls

Despite this sell-off, both companies actually posted reasonably strong results.

JB Hi-Fi lifted FY26 revenue 4.8% to $11.06 billion and net profit after tax 6% to $489.9 million.

Earnings before interest and tax rose 5.8% to $734.4 million.

The total dividend jumped 22.5% to 337 cents per share fully franked, and the company finished the year with $206.5 million of net cash and no interest-bearing debt.

For its part, Harvey Norman grew total system sales 3.1% to $9.64 billion and statutory profit before tax 4.9% to $790.29 million.

Its fully franked dividend rose 3.8% to 27.5 cents per share.

Chair Gerry Harvey said of the results:

FY26 delivered growth in operating earnings, continued international expansion and strong franchise profitability. With total assets approaching $9 billion, net assets approaching $5 billion, substantial property ownership and low gearing, we remain well positioned to deliver long-term sustainable growth for our shareholders.

Foolish takeaway

A 1% fall is not a crash, and the ASX 200 remains only modestly below its August level.

What changed on Tuesday was the assumptions behind the market.

Investors had been pricing in a pause, and they are now pricing in a hike.

The post Why the ASX 200 just hit a six-week low appeared first on The Motley Fool Australia.

More reading

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• 3 top ASX dividend shares to buy in September

Motley Fool contributor Mark Verhoeven 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 positions in and has recommended Harvey Norman. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

ASX bank shares fell hard on Tuesday, with the bad news coming from the banks’ own economists.

Westpac Banking Corp (ASX: WBC) shifted its forecast to a November rate rise, taking the cash rate to 4.60%.

That means all four majors now expect the Reserve Bank to tighten again this year.

The financials sector dropped 1.63% on the day.

What higher rates actually do to ASX bank shares

The instinct is that rate rises are good for banks, and that is only half true.

Higher rates let banks reprice deposits more slowly than loans, which supports margins for a period.

However, they also slow credit growth, lift arrears and eventually raise bad debt charges.

The most recent results show margins remain stable.

The Commonwealth Bank of Australia’s (ASX: CBA) FY26 net interest margin came in at 2.05%, three basis points lower than FY25.

Westpac held its margin steady at 1.89% in the June quarter.

National Australia Bank Ltd’s (ASX: NAB) margin slipped two basis points to 1.79%, whereas that of ANZ Group Holdings Ltd (ASX: ANZ) rose one basis point to 1.54%.

Loan losses are also creeping up.

CommBank’s loan impairment expense rose 9% to $788 million in FY26.

NAB booked $299 million of credit impairment charges in the third quarter.

What the majors are actually earning

CommBank remains the standout on profitability.

Cash net profit after tax lifted 7% to $11.0 billion in FY26, on operating income of $30.2 billion.

Cash return on equity reached 14.0% and the full-year dividend rose to $5.05 per share fully franked.

Its common equity tier one ratio finished the year at 12.0%.

The quarterly updates from the other three were steadier.

Westpac reported $1.8 billion of net profit excluding notable items, with a 12.1% capital ratio.

NAB delivered $1.83 billion of cash earnings and an 11.93% capital ratio.

ANZ posted $1.90 billion of cash profit in its own third quarter update.

What you are paying for ASX bank shares today

When looking at valuations, this is where the argument becomes more difficult to justify.

CommBank closed Tuesday at $158.69 on a price-to-earnings ratio of 24.6 and a 3.15% yield.

NAB finished at $38.87 on 19.6 times earnings with a 4.33% yield.

ANZ ended at $36.94 and Westpac at $34.58, yielding 4.37% and 4.41% respectively.

Fund manager Wilson Asset Management remains underweight the sector.

Its team pointed to slowing credit growth, rising competition and some deterioration in loan book quality.

Business lending pipelines were described as relatively healthy, while mortgage growth expectations have been revised lower.

Foolish takeaway

A rate hike is not necessarily a huge positive for ASX bank shares, and Tuesday’s selling made that point.

The sector is being asked to grow earnings while credit growth slows and households tighten.

I find NAB, ANZ and Westpac far easier to justify than CommBank at 24.6 times earnings.

The yields on those three are genuinely useful, and the capital positions are strong enough to fund them.

What I would not do is buy ASX bank shares purely because the cash rate is heading higher, because the last three hikes have not lifted a single major’s margin.

The post All 4 big banks now expect a rate hike. What does this mean for ASX bank shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Mark Verhoeven 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.

The recent changes to capital gains tax (CGT) may reduce the after-tax appeal of investment returns driven by share-price growth. 

This is influencing some investors to favour ASX dividend shares. That’s because a greater portion of returns comes from regular income and potentially franking credits.

According to S&P research, the trailing 12-month dividend yield of the S&P/ASX 300 Index (ASX: XKO) is around 3.5%.

For investors looking to outperform this benchmark, here are three ASX dividend shares with yields over 6%. 

Rural Funds Group (ASX: RFF)

Rural Funds Group is a real estate investment trust (REIT) that holds and leases agricultural land and equipment. 

The company manages around $2 billion of diversified farmland and assets located across several states.

Its segments include cattle, almonds, macadamias, cropping, vineyards, and other agricultural products. The majority of its revenue is derived from its cattle and almond segments.

ASX REITs can be attractive dividend stocks because they typically own income-producing property and distribute a significant portion of rental income to investors as distributions. 

Their returns can therefore provide relatively predictable income. It is worth considering dividends are not guaranteed as REITs can be sensitive to interest rates, property values and debt costs.

At the time of writing, this ASX dividend stock is offering a distribution per unit of 11.73 cents in FY27, which is a yield of approximately 6%.

IPH Ltd (ASX: IPH)

IPH is a holding company, which engages in the provision of intellectual property (IP) services.

This is attractive as a dividend stock because it has a defensive, recurring business, strong cash generation, and a history of growing its dividend. 

IPH is considered defensive because businesses still need to protect and maintain their patents and trademarks regardless of the economic cycle. Once a company has an IP portfolio, it generally continues paying for renewals, legal work and administration even during a recession.

So IPH’s revenue is less dependent on people buying discretionary products or services, which can make its cash flows and dividends more stable than those of many other companies.

At the current share price, the recent dividends imply a very high yield of over 11%. 

HomeCo Daily Needs REIT (ASX: HDN)

Another ASX dividend stock to target for high yields is HomeCo Daily Needs. 

Another ASX REIT, it is an Australian property group focused on the ownership, development, and management of Australian shopping centres.

It also offers a defensive profile, as its property focuses on everyday needs such as supermarkets, healthcare, childcare and essential services. 

These tenants tend to remain in demand even when the economy weakens, which supports relatively stable rental income and distributions.

At the time of writing, it offers a yield over 7%. 

The post 3 ASX dividend shares with yields over 6% appeared first on The Motley Fool Australia.

More reading

• How much do I need to retire on $80,000 a year at 50?
• 2 great ASX dividend share buys for passive income in September
• 3 ASX passive income stocks to buy with $50,000
• 3 top ASX dividend shares to buy in September
• How much is needed in superannuation to target a $60,000 annual passive income?

Motley Fool contributor Aaron Bell 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 positions in and has recommended Rural Funds Group. The Motley Fool Australia has recommended HomeCo Daily Needs REIT and IPH Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.