Key insights
- The S&P 500 is approaching a 10% correction, driven by geopolitical tensions and rising energy prices. Brent crude's surge above $103/barrel fuels inflation concerns. While corrections are common, the article highlights the potential for further downside if geopolitical risks escalate, impacting energy markets and overall market sentiment. A 20% drop would signal a bear market, a threshold not yet reached.
Last week, the stock market crept closer to a correction, which is technically a 10% drop from the market's recent high. The market rebounded a bit on Monday of this week on hopes that the conflict in the Middle East was nearing some kind of end process, but fell again Tuesday on fresh concerns that the war will continue for the foreseeable future.
Brent crude, the international benchmark, again rose above $103 a barrel, stoking fears of an international energy crunch.
As I write this during mid-morning trading on Tuesday, March 24, the S&P 500 index stands at 6,526. That's just about 6.5% below 6,978, the recent high it hit on Jan. 27. So, if the index drops another 3.5%, or 244 points, it will enter a technical correction.
That shouldn't spook investors too much, however. Such 10% pullbacks in the market are very common and occur on average about once a year. Lots of factors can cause such a pullback in major stock indexes -- everything from geopolitical events (especially those that drive energy prices dramatically higher, like the current one), to economic concerns, earnings reports, and changes in monetary policy by the Federal Reserve, among other factors.
Corrections last, on average, about 115 days before the market rebounds and goes on to exceed the most recent high -- an encouraging point for investors to remember. If the market drop exceeds 20%, it will be in bear market territory. But we're not close to that just yet.