Rate cut reality check: Why the ASX tumbled after the RBA’s big move
Lower rates are usually great news for the stock market, so why did Australian stocks fall after the RBA's announcement?
The S&P/ASX 200 index ended 0.7% lower on Tuesday after the central bank cut the cash rate by 25 basis points, Australia's first rate cut in 4 years.
It comes as much anticipated relief following 13 cash rate increases in the last 2 years alone.
But while mortgage holders may be breathing a sigh of relief, the stock market had other ideas. So, what gives?
Firstly, the stock market always moves on forward assumptions. In the lead up to the February rate decision, the market was 90% confident rates would be cut, so the news was already priced in.
What caught investors off guard was the tone of RBA Governor Michele Bullock.
RBA's hawkish warning
Bullock essentially dashed any hope of multiple rate cuts by mid-2026, calling that view "unrealistic".
She didn’t mince words: “This does not imply further rate cuts are guaranteed.”
The RBA signaled that while inflation is easing, it’s not a done deal yet, and further cuts won’t come as quickly as the market had hoped.
That means businesses and households won’t be getting the rapid relief some investors had priced in.
What’s Next?
While investors may need to adjust expectations on how quickly rates will fall, Moomoo market strategist Jessica Amir remains optimistic about the stock market over the next 12 months.
"Although the Aussie share market fell on the news, the initial market reaction can't always be trusted. We need to see a few days of trading to confirm if we are headed for a serious leg down. But if we are, I don't believe the market will stay down and out, as ASX200 company earnings season has been delivering 11% better earnings than expected," says Amir.
"The rate cut is a big win for the share market and the key sectors that have driven us to these levels. [It} means companies' earnings growth multiples (or profits) can be supported higher. And this supports further share market growth."
Amir points to technology, consumer discretionary and (despite usual expectations) financials as the big winners from the RBA's news.
So, what does this mean for you?
For everyday Aussies, the rate cut means cheaper mortgages and loans – assuming banks pass on the full reduction.
For investors, remember to keep your eyes on the horizon.
While it may be tempting to trade on market moving decisions, short-term fluctuations can do more harm than good.
Instead, staying invested, diversifying and trusting the process will serve you better than obsessing over daily price charts.
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