The ASX 200 (INDEXASX: XJO)(^AXJO) could be due for a big correction this year as it reached a recent high.
The ASX 200 is an index of businesses on the ASX that has been put together by US financial services company Standard & Poor’s. The ASX 200 is 200 of the largest businesses on the ASX in terms of market capitalisation.
Why The ASX 200 Could Be Due For A Market Correction
Just over a week ago the ASX 200 broke through 6,500 for the first time since the GFC.
There are many different factors why the ASX 200 has done so well. Most resource prices are near a high, which has helped large resource businesses like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG) and Santos Ltd (ASX: STO) higher.
Low interest rates have pushed certain shares higher like Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Goodman Group (ASX: GMG) higher.
Strong profit growth continues to benefit the share price of CSL Limited (ASX: CSL) and Aristocrat Leisure Limited (ASX: ALL).
The prospect of house prices stabilising has boosted Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB).
Can The Good News Continue?
Commodity prices are known to be cyclical and are fairly likely to fall.
Trade tensions between the US and China will have wider spread effects if the issues are not resolved soon.
Australian house prices are not guaranteed to stop falling. Potential borrowers still need to pass the banks’ lending checks which are stricter and more stringent.
Price/earnings ratios look quite unsustainable for the best growth shares, although lower interest rates would go some way to justify their current levels.
What To Do Then?
Overall, I still believe the share market will go higher over the long term, particularly with dividends reinvested. However, I am being careful about the price I pay for a lot of shares.
I would rather buy one of the reliable shares in the free report below instead.
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.