ETFs & Markets with Todd Sohn: Correction Deepens, But Is It Oversold Yet?

So, to hop right into it, we are roughly 8% off the all-time highs here in 2025. An 8% correction is roughly the same as what we had in 2024. So, as bad as it feels when stocks correct, this correction is no different from what we saw last year. For context, the average correction in a calendar year is about 14%, and average performance is up about 8% or 9%.

That's based on data for the S&P 500 since 1945. We'll see if we hit the average marker or if things get worse.

Now, from the ETF universe: we've had a pretty good reset here. We felt that excess had crept into the market over the course of last year, whether you looked at leveraged ETF assets or flows into technology-sector ETFs.

If we took this chart back a few months, we would have seen almost half of the ETF universe trading more than two standard deviations above their 200-day moving average. Now, we have about a third trading just in line with the 200-day. So, it's been a pretty good reset. But I would refrain from using the term "deep oversold condition" just yet. When you start to get those deep oversold conditions, especially within the context of uptrends, that's a better place to start adding exposure.

Now, the one area that does hit oversold territory is tech. As you can see on this scatterplot, large-cap growth is slowly getting there as well. Those two tend to move together.

But again, the bulk of the market is more so resetting from what was very stretched territory heading into the end of last year and into this year. So, I think the overall message is to stay patient. We're only 8% off the highs from earlier this year, about a month ago. And the average correction can run into the double digits.

So, stay patient. We think that there will be a better time to add equity exposure as the year progresses.

One interesting change we’re seeing is within tech sector flows. Over the last couple of weeks, since the introduction of ChatGPT to the public, flows had been all-in on tech.

That was largely the right call until tech peaked in the third quarter of last year. Now, you're starting to see pretty significant outflows from tech ETFs, specifically semiconductors, as you can see on this chart. Finally, the market is starting to throw in the towel. Again, this is a change at the margin. It does not necessarily mean it’s time to start buying tech because we are still in a correction.

But at least the sentiment backdrop is starting to ease in this area, which is a change we want to continue to monitor going forward.

On the other side of tech is high-beta risk appetite. You are seeing flows into cash-like ETFs, such as ultra-short-duration ETFs, really start to spike.

Part of this is because you can still get 4% on cash, but I also think it reflects some unease and anxiety in the equity market. This is a key ingredient in helping to establish tactical lows, along with what we’ll look for in inverse ETF volume and put/call data. Once put volume spikes in response to oversold conditions, it can signal potential market stabilization.

So, at the very least, it’s notable that we are starting to see increased flows into cash-like ETFs. That’s what we have for today—an update on where things stand in this correction, as well as the changes in tech sector ETFs. If you have any questions, please let us know.

This communication was prepared by Strategas (“we,” “us,” or “our”), a brand that offers investment advisory services through Strategas Asset Management, LLC, an SEC Registered Investment Adviser, and provides research to institutional investors through Strategas Securities, LLC, a broker-dealer and FINRA member firm and an SEC Registered Investment Adviser.  This communication represents our views as of 10/08/2024, which are subject to change, and presented for illustrative purposes only. The information contained herein has been obtained from sources we believe to be reliable, but no guarantee of accuracy can be made. This communication is provided for informational purposes only and should not be construed as an offer, recommendation, nor solicitation to buy or sell any specific security, strategy, or investment product.  This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry, or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. Past performance does not guarantee future results. All investments carry some level of risk, including loss of principal.

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