The U.S. stock market has lost around $5 trillion in value over the last three weeks. The S&P 500 has fallen 10% from its peak on February 19, dropping from a market value of $52.06 trillion to $46.78 trillion. This puts the index in correction territory.
Several factors are driving this market downturn. Trade tensions between the U.S. and major partners, worsened by tariff headlines, have created volatility. Signs of slowing economic growth are also evident in weak consumer sentiment surveys and cautious outlooks from various sectors.
stock market correction explained
Emmanuel Cau, a strategist at Barclays, noted in a client brief, “Our interactions with clients indicate that the mood music is changing. While many see recession talk as premature, concerns about erratic policy from the new administration abound, with the ‘uncertainty tax’ hitting growth expectations.”
Another major factor is the unwinding of the growth trade related to artificial intelligence.
Nvidia, a key player in AI, has seen its stock drop 17% since February 19, while the Roundhill Magnificent Seven ETF has fallen 16%. Before the correction, valuations for AI-related stocks had surged, with some companies’ market caps exceeding $3 trillion, raising concerns about overvaluation. Despite the recent losses, the S&P 500 is still trading at 24.1 times its trailing 12-month earnings, well above its long-term average, suggesting that valuation levels remain high.
This market correction is happening amid economic uncertainty and changing investor sentiment, emphasizing the importance of cautious optimism and vigilance in financial markets.
