Stock Market Correction Deepens: Will the Sell-Off Continue?

The U.S. stock market has officially entered a correction, with the S&P 500 plunging over 10% from its February 19 high. The Nasdaq Composite also confirmed its correction last week. This downturn has erased $5 trillion in market value, marking a stark shift from the bullish sentiment earlier in the year.

Historically, market corrections—defined as declines of at least 10%—are common. Since 1929, the S&P 500 has seen 56 corrections, with only 22 turning into bear markets. On average, corrections result in a 13.8% drop, far less than the 35.6% average decline of bear markets. The current correction has lasted 22 days, with historical data suggesting an average of 115 days.

Market uncertainty has been fueled by ongoing tariff disputes, inflation concerns, and economic slowdown fears. Investors worry that escalating trade tensions could trigger a recession, eroding confidence in the so-called "Trump put"—the expectation that policies will support the stock market.

In response, investors are flocking to safe-haven assets. The yen has surged 6.5% this year, gold hit record highs with a 13% gain, and U.S. Treasury yields have fallen as demand for bonds rises. Defensive sectors like healthcare and consumer staples have outperformed.

Investor sentiment has soured, with the AAII Sentiment Survey showing pessimism at a two-year high. Institutional investors are cutting equity exposure, while volatility has spiked, with the VIX at a seven-month high.

Tech stocks, particularly the "Magnificent Seven," have taken a hit, with Tesla down 33% since the market peaked. As risk appetite wanes, this correction may shift market leadership toward more defensive sectors.