The ASX 200 has pulled back. What it means for investors

If your portfolio has taken a hit in recent times, you’re not alone.

The ASX 200 briefly entered correction territory earlier this week, falling just over 10% from its recent high before partially rebounding. Australia is one of several global equity markets to have pulled back sharply in a short space of time.

Geopolitics has been the most immediate catalyst. Escalating conflict in the Middle East has disrupted energy markets, pushing oil prices above US$110 a barrel and adding to an already fragile global backdrop.

But markets are reacting to more than the conflict itself. Higher oil prices feed directly into inflation, complicating the picture for central banks which have been cutting them. The RBA raised rates again in a narrow decision earlier this month fearing inflationary pressures from the impact of higher oil prices, while the US Federal Reserve signalled it’s in no hurry to cut rates any time soon.

The result has been a broad repricing across equity markets. While the trigger may feel specific to this moment, the pattern is familiar. The sell-off that has since followed has been broad and largely indiscriminate (select sectors aside, like energy stocks, which have rallied on higher crude prices).

Writing in Bassanese Bites, our Chief Economist David Bassanese’s base case is that a negotiated resolution remains the most likely outcome. But markets are waiting for confirmation and, until they get it, volatility will be the default setting.

The potential positive for investors is that geopolitical shocks tend to be short-lived. Research by Hartford Funds found that historically the S&P 500 was higher one year after the onset of conflict 73% of the time, with average one-year returns in the high single digits. Oil-driven shocks can take longer to resolve, but history still favours patience over panic.

This has happened before

A 10% pullback may feel significant in the moment, but it is a recurring feature of markets.

As we have written about before, falls of more than 5% happen roughly once a year on average. Of those that reach 10%, just over half go on to become deeper declines, although the risk is lower when the economy is not heading into recession.

The most recent comparable moment was Liberation Day in April last year, when Trump’s tariff announcement sent the ASX down 15.8% peak-to-trough in a matter of days. It recovered fully within weeks.

Before that, investors experienced a 35% fall in the Australian share market in just five weeks during early 2020. Markets recovered to pre-crash levels just 13 months later.

History offers some reassurance here. Markets price fear faster than they price recovery – which is why making significant decisions on instinct tends to produce worse results than sitting tight. Corrections also frequently occur without recessions, and those tend to be shallower and shorter. Not every 10% fall becomes a bear market, and when it doesn’t, recoveries have historically been faster and more complete.

What to do now

If this is your first correction, here’s the most useful thing to know: your portfolio is not necessarily broken. Companies are still operating, earning and paying dividends in many cases.

What’s changed is the price someone is willing to pay for them today. That price is now generally being set by sentiment, interest rate expectations and uncertainty, rather than a collapse in earnings.

Whether it’s your first or your tenth correction, the same principles apply:

• Stick to your regular investing plan. Regular contributions into a falling market mean your dollars buy more units of an ETF than they did a month ago. That’s dollar-cost averaging working in your favour, even if it doesn’t feel that way right now.
• Don’t confuse discomfort with danger. A growth-heavy portfolio will feel this more acutely than a defensive or balanced one. That’s the trade-off for higher long-term return potential. Volatility isn’t a malfunction; it’s the price of admission.
• Check your risk settings, not your balance. If this correction has you genuinely rattled, consider whether your current allocation still matches your actual risk tolerance. Timing the market is a fool’s errand, but making sure you’re in the right strategy for the long run is always worth revisiting.
• Think about tactical opportunity. Corrections can create genuine entry points. Betashares senior investment strategist Cameron Gleeson’s Iran ETF Playbook lays out some tactical opportunities for those investors seeking to take advantage of the correction and who have the risk tolerance to do so.
• Don’t make permanent decisions based on temporary conditions. Selling a long-term holding during a drawdown locks in a loss and removes you from any potential recovery.

Since its launch in August 2000, the S&P/ASX 300 has returned 8.47% per annum including dividends (as at 27 February 2026). Rate cycles, geopolitical shocks and stretches of uncertainty aren’t detours from that long-run return potential. They’re part of how it’s built.