The Dow closed at 45,167 — down 793 points, or 1.7%. That put it exactly 10% below the February 10 high of 50,513, the technical definition of a market correction. The Nasdaq fell 2.2% and is now down 10.6% from its October record high. The S&P 500 dropped 1.7% to 6,369 and is down 8.7% from its January all-time high, creeping toward correction territory of its own.
Brent crude settled above $112 per barrel Friday, its highest since the war began. The CBOE Volatility Index — Wall Street's fear gauge — closed at 31, its highest level since April.
The trigger: Trump gave Iran another 10 days to reopen the Strait of Hormuz. Iran rejected his proposals. Markets took little comfort from the extension.
Five weeks of losses don't happen on one headline. The market has been absorbing a combination of blows: the Iran war and oil shock, a hot PPI report, the Fed holding rates with a hawkish tone, GDP revised down to 0.7%, and now futures traders pricing a greater than 50% chance of a rate hike by year-end.
"The overall tone has turned very negative and now we have broken down into correction territory," Ken Polcari at SlateStone Wealth told Reuters. He added he wouldn't be surprised to see a total drawdown of 15% to 20% before the sell-off ends.
Amazon dropped 4% Friday. Nvidia fell 2.2%. Megacaps have been the biggest drag.
Corrections are uncomfortable but not unusual. The Nasdaq has entered correction territory roughly once a year over the past 15 years. And according to Motley Fool analysis, the Nasdaq has returned an average of 22% in the 12 months following its first close in correction territory during that same period.
The S&P 500 hasn't crossed into correction yet. Whether it does depends heavily on what happens at the Strait of Hormuz — and the next 10 days just became very important.
