What Makes This Market Correction So Confusing

livemint.com:

A former editor of the Economist magazine explained the craft of journalism as “simplify, then exaggerate." The stock-market correction offers plenty of opportunities to do exactly that, but none are satisfactory on their own. Simplification 1: It is all about the Fed. Investors have finally begun to believe the Federal Reserve when it says it will keep rates higher for longer, although it isn’t expected to raise rates at its meeting this week.

Since the S&P 500 peaked at the end of July, 10-year Treasury yields have jumped almost a full percentage point to 4.85%. Naturally, stocks have fallen—more than 10% from their recent highs, the standard definition of a “correction." Why it is an exaggeration: It isn’t just the rate-sensitive stocks that have fallen. The biggest tech stocks ought to have fallen more than the rest, as they did last year, but haven’t.

The equal-weighted version of the S&P, which treats smaller stocks the same as larger ones, has fallen by more than the ordinary index. Growth stocks—dominated by Big Tech—have beaten cheap value stocks. Clearly, rising bond yields hurt, but the explanation is unsatisfying.

Simplification 2: It is all about impending recession. At the end of July investors had fewer worries about bond defaults—shown by the extra yield, or spread, of corporate bonds above Treasurys—than they had since April last year. No longer.

The worst-rated junk bonds, CCCs, yield more than 10 percentage points more than Treasurys again, rising more than a point in the past month alone. Lots of economic indicators are flashing warning signals, and the surprisingly strong third-quarter growth was driven by a lower savings rate, so not sustainable. Why it is an exaggeration: Even if recession is on