After falling more than 10% from its recent high, the small cap-focused Russell 2000 index became the first of the major U.S. benchmarks this year to enter correction territory Friday. The economically sensitive index has been hugely impacted by soaring oil prices as a result of the Iran war.
The correction adds to the market volatility that financial advisors and their clients are dealing with as the conflict with Iran nears its 22nd day. Advisors, for example, recently told InvestmentNews that they have been calming anxious clients about their retirement plans.
The Russell 2000 has tumbled in recent weeks as the war with Iran sent shockwaves through the Middle East. The war has caused widespread disruption to shipping in the Strait of Hormuz, an important chokepoint that handles about one one-fifth of global oil shipments, as well as significant volumes of natural gas. CNBC notes that the Russell 2000, with its exposure to cyclical sectors, is particularly sensitive to changes in oil prices and economic slowdowns.
The Federal Reserve kept its policy rate steady at 3.5% to 3.75% earlier this week, noting that inflation remains "somewhat elevated," and pointing to the uncertain implications for the U.S. economy from the war in the Middle East.
A market correction is defined as a decline of between 10% and 20% from a recent high. Larger declines than this are described as bear markets.
Dow Jones reports that the tech-focused Nasdaq narrowly avoided closing in correction territory Friday.
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