The latest buzz on Wall Street is that the S&P 500 will see a stock market correction worse than the pandemic. Like the 2020 stock market correction, when the S&P 500 fell more than 35% in a matter of weeks, which appear to be a possibility again.
The outward explanation is the conflict in Ukraine, but the main reason for the stock market’s decline is the same. Earnings expectations are set to undergo a systemic revaluation, and that can only mean stocks are grossly overpriced and stock market correction is coming. The market is bloated by stimulus money and unmet expectations, and it may fall back to the long-term trend line close to 2,700.
Stock market correction definition
A correction in the stock market, also known as a pullback, occurs when the stock market drops 10% from its 52-week high price. In 2022 stock market correction is common, and every bull market ends in a stock market correction, which has been the case for the past 40 years. Experienced investors always welcome a stock market correction in 2022 because it allows the market to stabilize before reaching new highs.
Oil drives inflation; the S&P 500 leave Russia
Many S&P 500 businesses are exiting or shutting down their Russian operations. The message here is that before the conflict, the expectation for profit growth in Q1 and FY 2022 was modest and was beginning to drop. Consensus expectations aren’t high either and could dip below 0%. In such a case, recession comes into play, which isn’t suitable for the market.
Oil and gas prices are rising due to tighter global capacity. Even if WTI and gasoline stabilize at present levels, they are almost 200% higher than last year’s levels and are expected to stay high for the foreseeable future. This means a tighter margin in Q1 and FY period than initially predicted, lower earnings than planned, and the economy’s potential stagnating. That will reduce discretionary spending, which is terrible news for S&P 500 earnings.
Final thoughts on stock market correction
The S&P 500 is a short-term stock market correction that may turn positive. The market has broken through bullish support at the 4,300 level, and now the near 4,200 target is also under pressure. If support holds and news improves, the S&P 500 could rise to 4,400, where strong resistance is anticipated.
Price action is projected to go below 4,200 in the long run, testing support at 4101.75, the current movement’s lowest low. If that level doesn’t hold, substantial support will be found at 4,000 and then 4,800.
