We Are In The Midst Of A Correction

The positive sentiment towards US stocks has faltered over the past few weeks, resulting in increased volatility as seen in the Volatility Index (VIX), which has risen by 22% compared to a month ago. Previously, investors were expressing concerns about the VIX being too low at 14 and bad things may happen; now, they get their wish.

Displaying We Are In The Midst Of...

The S&P 500 Index has experienced a 4% decline from its year-to-date high achieved on July 27, 2023, marking the most substantial decrease since the banking scare in February-March of the same year.

Displaying We Are In The Midst Of...

Similarly, the Nasdaq Composite has declined by 6% from its year-to-date peak on July 19, 2023.

Displaying We Are In The Midst Of...

The Dow Jones, on the other hand, has demonstrated greater resilience, with only a 2% drop from its year-to-date high established on August 1, 2023.

Displaying We Are In The Midst Of...

While these declines aren't catastrophic and do not indicate a widespread contagion fear akin to the banking crisis in March, they can be attributed largely to persistent inflation effects and anticipated interest rate hikes. These factors have led to increased bond yields and a decline in stock prices over recent weeks. These issues are not new and it's unlikely that rate hikes will be overly aggressive, even if the Federal Reserve believes there's room for such increases.

From a technical analysis standpoint, all three indices are still trading above their 200-Day Moving Averages, suggesting that the bullish trend remains intact. Given the substantial gap that has formed between the price and moving averages due to this year's bullishness, a correction at this juncture is both normal and healthy.

Considering these factors, it seems improbable that this correction will be significant. It might persist for another month with an additional 10% drop. I believe that the indices' drawdown will not exceed a 20% decrease from their peaks, presenting a potential opportunity for investors to buy stocks at more attractive prices.