As markets continued to tumble and volatility remained sharply elevated on Thursday, worried investors may be wondering whether the stock market is in, or will soon be in, a correction. Any decline in price of 10% or more from an index's most recent high is generally classified as a correction – and depending on whom you ask, a correction could represent either a natural re-adjustment in price within an overall uptrend or the beginnings of a doomsday scenario.
On Thursday, one of the three main large-cap indexes – the tech-heavy Nasdaq Composite – entered into correction territory, as tech stocks like Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX) and their FAANG brethren remained under heavy pressure. For now, the S&P 500 and Dow have both been spared membership in the correction club, but that could soon change if small-cap stocks fulfill their traditional role as a leading indicator for the markets – the Russell 2000 index of small-cap stocks also entered into correction on Thursday. (See also: 'Exuberant' Market Faces Second 10% Reversal Since January.)
As shown on the chart below, Nasdaq's continued plunge on Thursday places the index right around the -10% mark from its late-August highs. In the process, the index also extended its breakdown well below both its key 200-day moving average and a rising trendline extending back to mid-2016. Friday will be critical for equity markets – if Nasdaq and key tech stocks are unable to bounce, they could help pull the other major indexes into correction territory with them.