The US stock market recently took a significant hit, with the Dow Jones Industrial Average (DJI), Nasdaq Composite Index (IXIC), and S&P 500 Index (SPX) dropping by 2.60%, 3.43%, and 3.00%, respectively.

This decline was primarily driven by fears of a recession, spurred by inflation, high interest rates, geopolitical tensions, and the ongoing war in Ukraine.

The technology sector faced significant pressure, highlighted by a 4.8% drop in Apple Inc. (AAPL) shares following Berkshire Hathaway’s decision to purge half of its Apple holdings. This move exacerbated the broader market decline. Additionally, volatility-linked funds experienced substantial sell-offs, further amplifying the negative market sentiment.

On August 5, 2024, the extended losses pushed the Nasdaq Composite into correction territory, with significant declines in technology stocks, including the ‘Magnificent Seven’. A weak jobs report heightened recession concerns, causing global market unrest.

Japan’s Nikkei 225 index dropped a whopping 12.4%, the worst since Wall Street’s Black Monday in 1987, triggering a global sell-off. However, Asian markets began to recover with the Nikkei 225 rebounding over 10%. Despite this, major US indices continued their downward slide, although some stocks like AMD and Crowdstrike showed gains, hinting at a possible recovery in AI-related sectors.

The strengthening of the Japanese yen against the dollar further intensified the sell-off, particularly in the tech sector. Traders flocked to U.S. government debt for safety, driving the market’s fear index to its highest point since 2020. Though corrections are always unpleasant, they are a normal part of bull markets, and fundamentals like corporate earnings are expected to bring stability.

Despite the downturn, the US economy remains relatively strong, with controlled debt levels and a labor market that, while weakening, is still coming off historic highs. Federal Reserve Chairman Jerome Powell has suggested that rate cuts could be on the horizon as soon as next month, which may help stabilize markets. Investors are encouraged to keep a long-term perspective, viewing current volatility as a chance to invest at more attractive prices—essentially, ‘buying the dip.’

Market corrections, defined as a decline of 10% or more from recent peaks, are a natural part of the stock market cycle. They help adjust overvalued asset prices closer to their intrinsic value and are driven by factors like economic data, geopolitical events, changes in monetary policy, and market sentiment. While unsettling, corrections are typically short-lived, lasting a few weeks to a few months.

The S&P 500 usually experiences one correction per year, generally ranging between 10% and 20%. Although these corrections can lead to significant short-term losses, they are often followed by a rebound as market conditions stabilize and investor confidence returns. Understanding that these corrections are regular occurrences can help investors keep a long-term perspective, viewing these periods as opportunities to invest at lower prices rather than as reasons to panic and sell off their holdings.