All has not been well with the stock market lately. With the market flashing yellow lights, more strategists are bracing themselves for what could turn in to a 10% correction. The major indexes, after retreating for the past month, are far off their record highs. The Dow Jones Industrial Average is more than 6% below its Dec. 4 all-time high, while the S & P 500 has fallen more than 4% from its Dec. 6 peak. The Nasdaq Composite is lower by more than 5% from its Dec. 16 record. These moves coupled with recent trading action have made several observers concerned that the market will only get worse before it gets better. Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, is incorporating expectations of a 5% to 10% pullback into her S & P 500 target for the year. She expects the broad market index could end the year at 6,600 — a 13% move up from Friday’s close — so long as it can get past any near-term choppiness. At risk “[We were] very clear with the 6,600 that we expected a 5% to 10% pullback to materialize early in the year,” Calvasina told CNBC ” Squawk Box ” on Monday. “[If] we get something beyond 10%, I think that target is at risk, but I think we can withstand a 5% to 10% type move.” “And, you know, the last few days, it looks like that’s right where we’re headed,” Calvasina added. “We’re pretty close to that 5%.” Utilities would likely serve as a defensive safe harbor in the event of a drawdown of that size, she said, noting she’s overweight the group. .SPX 6M mountain S & P 500 over past six months Javed Mirza, quantitative and technical analyst at Raymond James, said the price charts point to “an intermediate-term (1-3 month) corrective phase [that’s] taking hold on most North American equity indices,” including sell signals he said were triggered in the S & P 500 and Russell 2000. Mark Hackett, chief market strategist at Nationwide, recently wrote that “we’re due for one,” referring to a correction, typically defined as a decline of 10% or more from a high . Hackett added that such pullbacks are a healthy part of a market cycle, and typically occur every 18 months. Troublesome signs A number of signs in the market have made investors wary lately. The mega-cap tech leaders that shouldered the market last year have buckled, with Nvidia and Apple more than 10% off their recent highs, and the fourth quarter rally failed to broaden out to include other sectors and groups. On Monday, the 10 -year Treasury yield — used to price mortgages, credit cards and auto loans — touched its highest level going back to November 2023 , heading toward the key 5% level that could further pressure an already fragile market. The benchmark yield was last trading around 4.77% late Monday. US10Y 5D mountain U.S. 10-year Treasury yield To be sure, most strategists are confident the longer-term trend for markets remain bullish, saying the recent slide is a natural reaction to last year’s exuberance. They say a strong fundamental story, in the form of everything Artificial Intelligence-related, and the strength of the Magnificent Seven stocks (Apple, Microsoft , Nvidia, Amazon , Tesla , Meta and Alphabet ), can still support the S & P 500. “We don’t anticipate a protracted downturn,” Nationwide’s Hackett wrote. “This is a textbook case of the market getting ahead of itself and self-correcting — healthy, expected and ultimately constructive for long-term market stability.” According to RBC’s Calvasina, the outlook for stocks will finally rest on the strength of the upcoming earnings season, as well as the path forward for inflation.
