The U.S. stock market has declined about 10% from its peak, entering a correction phase. VIX has spiked, but OAS remains stable, suggesting no immediate economic crisis.
Opinion
The recent correction is more likely a short-term volatility event driven by political uncertainty rather than a precursor to a long-term economic downturn.
Core Sell Point
The U.S. market is experiencing heightened volatility rather than a full-scale recession, making a short-term trading approach more appropriate.
The U.S. stock market has entered a technical correction phase, declining about 10% from its peak this year. Given that the market had surged approximately 60% over the past two years, opinions are divided between those viewing this as a natural correction and those seeing it as the beginning of a major downturn driven by Trump’s tariff policies. However, an examination of market fundamentals suggests that this is more of a short-term volatility spike than a structural decline.
First, Trump’s "America First" policies and tariff hikes are not new market threats. These policies were already experienced and priced in during his previous term, making the recent tariffs more of a temporary adjustment factor reflecting political uncertainty rather than the start of a new financial crisis.
Second, there are no clear signs of an economic downturn spreading to the real economy. While market volatility indicators like the VIX (Fear Index) have surged, the OAS (Option-Adjusted Spread between high-yield corporate bonds and Treasuries) remains relatively stable. Historically, both VIX and OAS spike simultaneously during a real economic recession, whereas the current situation aligns more with temporary political or external shocks seen in the past.
In conclusion, the recent correction in the U.S. stock market appears to be a short-term adjustment driven by political uncertainty rather than a signal of a long-term economic downturn. However, given that a massive rally like the past two years is unlikely in the near term, investors should consider a short-term trading strategy rather than a long-term buy-and-hold approach.
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Core16 may hold positions in the stocks mentioned in this post and may buy or sell them at any time.
