More interestingly the current bull market up until this correction, has been extremely unusual in that it has been one of the longest ever periods recorded (48 months) without a 10% correction in the S&P 500 index. The previous longest periods were october 1990- october 1997 (84 months) and March 2003 till october 2007 (54 months). See Chart 1 below, Green candles are up for the month red candles are down for the month:
Chart 1 Monthly Movements in the S& P 500 Index
Chart 2: Price to Earnings Ratio on the S& P 500
Another reason for the stockmarket sell off is that the Federal Reserve has been getting closer to raising interest rates from their artificially low target range of 0 to 0.25% - see Chart 4. Some market participants are clearly trying to get out of the market before the rise which is now most unlikely to happen in September. The low interest rates have led to US companies taking issuing record amounts of debt not so much to finance future growth but to buy back their own shares to artificially raise their earnings per share. This can work on the short run but in the long run by raising the leverage (debt to equity ratio) of US stocks increases their riskiness and therefore their potential for volatility. This is precisely what we are now witnessing.
Chart 4: Three Month US Treasury Bill interest rates
Note slightly amended versions of this post have appeared as articles in TheConversation.com and Talkmarkets.com