Correction territory: Some perspective on the S&P 500's recent fall

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On Friday, the S&P 500 entered correction territory, with the flagship index now down more than 10% from its July peak, and some 14% from the peak in December 2021. That takes the total year-to-date gains from a robust 20% to a more modest 7%.

Reality check

As it often does, the latest quarterly earnings season has offered something of a sobering reality check for the runaway stock market, with tech giants stumbling: Alphabet’s results last Tuesday saw its shares drop almost 10% for the week; Meta added to the gloom, warning of softer ad spending; and even Microsoft shares have lost 8% since their summer peak, despite continued momentum in its all-important cloud division.

Although yet to report earnings, some of the shine has come off much-hyped AI stock Nvidia (down 18% from its peak) as well. Beyond tech, Chevron, Ford, and Covid-winner Moderna have also all come under pressure for a variety of reasons, resulting in their stocks falling 13%, 19%, and 30% in the last month, respectively.

Defying gravity

The recent fall will make some big, probably Halloween-related headlines, but, as always, the drop can be thought of in two ways. On the one hand, a 14% fall from the previous peak is pretty small potatoes, something that’s happened dozens of times. On the other hand, if you’re nervous about the economy or markets more generally, the chart above suggests there’s a lot more room to fall before stocks bounce back.

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