The stock market likely isn't headed for a 10% correction, but Friday's declines show how vulnerable the market is to even the slightest hint of a Federal Reserve rate hike.

"We can't really get too carried away with this," said Craig Erlam, a senior market analyst at Oanda, based in London, referring to the S&P 500's 2.5% decline on Friday. "This may just be a lot of noise at this stage. This may just still be a sign that the market is a little overheated and is still very vulnerable."

On Monday, stocks reversed course, with the three major indices gaining steam. In remarks Monday, Atlanta Federal Reserve Bank President Dennis Lockhart referenced the market's sensitivity to comments from Fed officials, one of the culprits of Friday's declines.

Still, stocks remain at elevated levels. "We're not far off from the highs in the S&P 500 and the Dow Jones Industrial Average," Erlam added.

The S&P 500 is down roughly 3% from its all-time record high of 2,190.15, reached on Aug. 15. The Dow Jones Industrial Average is down 2.9% from its record high of 18636.05, also reached on Aug. 15.

"There's a keen focus on central banks," Erlam said. "We had the disappointment from the European Central Bank last week. Market participants were, in my opinion, wrongly anticipating more central bank stimulus."

Thursday, the ECB kept key interest rates unchanged, including its negative deposit rate, and failed to expand its quantitative easing program, which involves the purchase of 80 billion euros worth of corporate and government bonds each month.

Next week, the Fed holds its two-day policy meeting, with investors pricing in a 21% chance of a 25 basis point rate increase. Fed officials won't be making any public comments after Monday as the central bank's quiet period begins ahead of next week's meeting. 

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