One of the most difficult parts of navigating the stock market for investors is the inherent unpredictability. On February 28th, the United States attacked Iran and began Operation “Epic Fury.” Since then, the S&P 500 Index has dropped nearly 8% while crude oil has soared more than 50%. However, on Tuesday, stocks soared after Iranian President Pezeshkian said that Iran is prepared to end the war if it receives security guarantees.
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Was a Market Correction Inevitable?
Each year, I write a piece that includes my market predictions. This year, my first prediction was that “The S&P 500 Index will suffer a correction of 10% or more during 2026.” Did I know a war with Iran was coming? Absolutely not. Nevertheless, I am always fascinated by how well markets follow historical seasonality patterns. After an above-average return of 16.4% in 2025, some profit-taking in early 2026 is not a surprise. Furthermore, historically speaking, performance during the first half of mid-term election years (like 2026) is atrocious. Remember, on average, the S&P 500 Index experiences a 14% peak-to-trough correction roughly once per year.
Bears are Caught Offsides
The stock market paints a portrait of human psychology and group think. Recently, investors have become increasingly bearish. For instance, the ETF put/call ratio’s 21-day moving average surpassed the peak of the 2025 Tariff Tantrum, signaling a rush for protection.
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Meanwhile, the AAII Sentiment Index has registered more bears than bulls for six consecutive weeks. Considering the stock market rises in the long-term, such bearish sentiment extremes are very rare.
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AI Fundamentals Remain Strong
While tech stocks have gotten killed recently, the underlying fundamentals remain robust. For instance, Micron (MU) beat Zacks Consensus Estimates by 38.64% last quarter and an average of 21.74% over the past four quarters.
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Additionally, NVIDIA (NVDA), the AI leader, sees opportunity amid the volatility. Over the past few weeks, the company has invested in Lumentum (LITE), Coherent (COHR), Marvell Technology (MRVL), and Nebius Group (NBIS).
Bottom Line
While the headlines remain dominated by conflict and oil fears, the underlying data reveal a market that was due for a breather. As sentiment hits rare bearish extremes and AI leaders continue to generate strong fundamentals, the current volatility may be providing the very “reset” needed for the next durable leg higher.
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Micron Technology, Inc. (MU) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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Lumentum Holdings Inc. (LITE) : Free Stock Analysis Report
Nebius Group N.V. (NBIS) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
