Tuesday’s larger than expected 50bpt interest rate increase from the RBA shocked markets, but the real reaction has come in more recent days, with the ASX200 falling 1.45% on Thursday, and down 2.2% over five days.

Closing at 7019 points, the market has given back approximately 3 weeks’ worth of modest gains while remaining above January’s lows. In the US, 10-year Treasuries rose above the key 3% threshold, spooking markets as investors worry that a combination of inflation and rising rates will tip the economy into recession.

While most pundits agree that higher rates will allow Australia’s banks to increase their net interest margin, which has been crushed in recent years as rates have fallen close to zero, a rapid increase in rates is also worrying investors.

The concern now is that marginal borrowers, who had to take out large loans to finance homes that had increased 30% or more in value post-Covid, will be unable to service mortgages with higher rates, and that banks may need to substantially increase their provisions for bad and doubtful debts. In addition, the extraordinary volumes seen over the last 12 months as property demand – and prices – soared are likely to fall more than expected; US mortgage demand is at 20-year lows. As a result, bank share prices have been crushed in recent days; the financials index is off nearly 8% over the week.

For nabtrade investors, a sell-off in bank shares is worth getting excited about; while volumes remain subdued overall, there are plenty of bargain hunters willing to pick up one of the big four at a discount. After a brief window of enthusiasm for ANZ (ANZ), Westpac (WBC) is back to the top of the buy list, with Commonwealth Bank (CBA) in second place. The two companies have had different fortunes over the last 12 months – while Westpac is down 20% over one year and well off its 2018 high of $34, CBA is down just 6% over a year and still above its pre-Covid high of $90. NAB and ANZ also found plenty of buyers, as did Bank of Queensland (BOQ), which is down 23% year on year.

Bank of Queensland shares over 12 months (BOQ)

The energy sector is one of the spots of green on the screen, with Woodside Energy (WDS) the brightest. With the acquisition of BHP’s oil and gas assets, Woodside is now a top 10 company on the ASX. It is a longstanding favourite with nabtrade’s SMSF clients in particular, but recent strength is testing investors’ commitment; many have sold in order to buy into the weaker banking sector. Woodside has had a stellar year, up nearly 50%, but interestingly still remains below its 2014 and 2018 highs.

Woodside shares over 10 years (WDS)

Materials have also fared strongly in trading, with BHP (BHP) still a modest buy, and Fortescue Metals Group (FMG) actively traded. Ongoing weakness in the lithium space – or perhaps just a little bit of sanity – has seen prices fall across the sector, and nabtrade investors have enthusiastically bought up stocks they were loathed to own at higher levels. Pilbara Minerals (PLS) and Allkem (AKE), the larger and more established players, were the picks.

Finally, weakness is giving longer-term investors a chance to enter the market, and they are consistently buying ETFs in order to get long term exposure. Vangard’s ASX200 ETF (VAS) as well as VGAD (their international flagship product) and GOLD, ETF Securities physical gold ETF all made the top 20.