5 reasons why the ASX 200 hasn't bottomed yet

This week will go down in the history books after the S&P/ASX 200 logged its largest one-day selloff in four years and a two-day selloff comparable only to the downturns seen during the pandemic and global financial crisis.

During this time, Wall Street's most-watched gauge of investor anxiety – the Cboe Volatility Index – logged its largest ever intraday spike in history. Likewise, the only comparable spikes are Covid and the GFC.

It's these panic driven moments that often set a market bottom but more often than not – finding the bottom is a process.

While some investors might argue that the market's bullish thesis remains unchanged (Fed cuts, solid earnings and disinflation momentum), here are five factors you should be weary of.

#1 Where's the bounce

The ASX 200 fell 5.7% between Friday, 2 August and Monday 5 August. We haven't seen a two-day selloff of this magnitude since 19 March 2020, where the market was down 9.8%.

After such a pronounced selloff, one would expect dip buyers to step up and the market to experience an oversold bounce. However, the anticipated rebound has been notably absent. The market edged up only 0.4% on Tuesday, followed by a modest 0.25% increase on Wednesday, and is currently down 0.3% on Thursday.

#2 Volatility is here to stay

Volatility is now very elevated and that's a big problem for investors. Things might be looking great at market open but unravel towards close or vice versa.

On Wednesday, the S&P 500 opened 1.0% higher, briefly rallied to a session high of 1.7% but finished 0.7% lower.

The last thing you want is for market participants to be selling into strength.

#3 Post volatility performance

Here's the ASX 200 performance following the ten largest VIX spikes since 2007.

Source: Market Index

When expanding the dataset to include the top twenty VIX spikes, the historic forward looking performance becomes a bit more pessimistic.

Source: Market Index

#4 Earnings season

The ASX 200 has rallied around 5% in the past twelve months but it has not been an earnings driven rally. This has pushed the market's forward price-to-earnings multiple to 16.7-times or 14% above its historical average of 14.7-times since 1992, according to Morgan Stanley.

This makes it a rather high stakes earnings season where company results and guidances need to live up to expectations.

Heading into results season, Morgan Stanley says consensus expects aggregate earnings to fall 3.5% in FY24 but bounce 5.4% in FY25 and 5.3% in FY26.

#5 September is around the corner

September has historically been the worst performing month of the year for global equity markets.

Since 1928, the S&P 500 has averaged a 1.1% drop in September and positive only 44% of the time.

In the past decade, the ASX 200 has averaged a 2.2% decline in September and positive just 20% of the time.

Source: Macquarie Research