The S&P 500 has fallen more than 10 percent from its December highs, officially entering correction territory as investors grapple with a convergence of geopolitical risk, trade policy uncertainty, and deteriorating economic data.

The benchmark index closed at 5,188 on Thursday, its lowest level since August 2025. The Nasdaq Composite has fared worse, down nearly 14 percent, as high-growth technology stocks have borne the brunt of the risk-off rotation. The Dow Jones Industrial Average, weighted toward cyclical and industrial names, has declined roughly 9 percent.

Defense Stocks Surge, Everything Else Sells

The market’s decline has been remarkably broad. Of the S&P 500’s eleven sectors, only two—energy and defense—have posted gains year-to-date. Lockheed Martin, Northrop Grumman, and RTX have collectively added more than $180 billion in market capitalization since the Iran conflict began.

Meanwhile, consumer discretionary stocks have been hammered as investors anticipate that rising gas prices will squeeze household budgets. Retailers and restaurant chains have seen their forward earnings estimates cut by an average of 8 percent over the past month.

What Smart Money Is Doing

Institutional positioning data shows hedge funds have reduced net equity exposure to the lowest levels since March 2020. Cash allocations in fund manager surveys have risen to 5.8 percent, a level historically associated with extreme bearish sentiment—and, contrarians note, often a precursor to market bottoms.

Fixed income has been the primary beneficiary. The 10-year Treasury yield has dropped to 3.82 percent from 4.15 percent in January as investors seek safety, though some analysts warn that inflation risk could limit further bond gains.