The S&P 500 has seen 27 corrections of 10% or more since 1964, with three key catalysts typically driving these downturns, Market Watch reports.
While concerns about market valuations and policy risks persist, some analysts believe a major correction may be avoidable.
Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, and his team analyzed past market corrections to identify common triggers. Their research found that:
- Rising interest rates led to 14 corrections.
- Increasing unemployment contributed to eight market downturns.
- Global exogenous shocks—such as geopolitical crises or credit events—caused five corrections.
Kantrowitz noted that corrections have historically followed periods of optimism, particularly after strong market performances. The S&P 500 has enjoyed two years of gains, fueling investor confidence in the economy and hopes for potential interest rate cuts from Federal Reserve Chair Jerome Powell.
While some investors remain optimistic, others have raised cautionary signals. Billionaire investor Paul Singer has warned of market complacency and potential risks. Recent earnings reports have also led to mixed reactions, with Nvidia’s strong performance boosting sentiment but some companies disappointing investors.
Bearish concerns in today’s market include:
- High stock valuations and concentration in a few large-cap stocks.
- Potential shifts in government policies under the new administration.
- Credit conditions and corporate earnings performance.
Despite these risks, Kantrowitz suggests that a correction may not be imminent. He argues that market downturns generally require a clear catalyst, such as a sharp rise in interest rates or an economic downturn—both of which seem unlikely in the near term.
Recent market volatility has been largely driven by interest rate fluctuations and inflation concerns. The 10-year Treasury yield rising above 4.5% has created short-term turbulence but has not led to prolonged market declines.
Kantrowitz remains “somewhat optimistic” that a major correction can be avoided this year, citing the economy’s resilience. However, he acknowledges that unexpected events—outside of interest rates or employment trends—could still trigger a downturn.
