The S&P 500 is current down about 7% from its highs, loosely tracking the time since the war in Iran began. Additionally, because there has been continuing attention to the prospect that the markets, especially because of AI financing, are facing a “bubble.” It can lead clients to wonder about whether a collapsing bubble in the markets is likely to happen and so whether their portfolios are at risk because of this prospect.
To address this concern, this week Piton Investment Team continued to devote research and discussion to this issue. From this discussion, we share two helpful highlights:
(1) Given the market correction in 2026 so far, should we now prepare for more of a correction and/or a bear market?
Here is some historical context, going back to World War II, for what happens following a 5% pullback in the market:
Only a fourth of these, roughly, have turned into a correction and less than 13% followed with a bear market.
For more details on recent corrections, here is a chart of how long it has taken the market to recover from 5%+ corrections, going back to March 2009. While there is variation, the median is less than a month:
The Piton Investment Team would expect to see other factors, in addition to the current pullback, to anticipate that the market will continue into a more serious downturn.
(2) If this is not a bubble, what is happening with the downturns of some high profile companies, especially in the technology sector?
The “Magnificent 7” had experienced phenomenal rise and dominance in the markets in recent years. It is to be expected that investors would at some point reassess the valuations and prospects of these companies, and that is what they are doing. The good news is that investors are evaluating each company according to its own actions and potential, so the team does not view this as a “bubble” (where investors lose faith in the group systemically). Analysis of the specific companies, comparing their current pricing with their expected earnings, suggests that expectations are not extreme and that each company has different potential, in the minds of investors. The team considers this a healthy correction, not a panicked reaction or a steps toward the collapse of a “bubble.”
The team follows data and updates regularly and meets at least weekly, so they remain vigilant about changes that would alter their perspective, but as of today, for the above reasons, among others, the team does foresee the current market as facing a “bubble.”
Piton clients will be receiving their quarterly Client Connector next week, with more details about this and other information related to Piton Portfolios. Quarterly investment statements will arrive shortly before the next Live Client Connector, on April 16, where there will be still more data and updates, along with opportunities for specific questions.
The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index comprised of the common stocks of 500 leading companies in leading industries of the U.S. economy. You cannot invest directly in an index.