Broker Check


March 02, 2020

With the stock market sliding lower this week, all the talk about a so-called "correction" can cause nervousness and confusion.

A correction is a friendly-sounding term to describe when a major stock market index like the Standard & Poor's 500 falls 10% or more from a recent closing high. The recent losses on Wall Street pushed all three benchmarks into correction territory during trading on Thursday.

The Dow Jones industrial average tumbled as much as 1200 points, while the S&P 500 and the Nasdaq Composite both dropped more than 2%.

As of the market close on Friday, it took just eight calendar days for the broad indexes to meet that 10% threshold, the fastest such drop since World War II, according to Morningstar.

The recent slide could cause more pain. Since a correction is a drop between 10 and 19.99%, there's always a chance we're only about halfway through this recent scare. The market fell more than 19 percent in corrections in 2018, 2011, 1998 and the 1976-78 period, Morningstar data shows.

But even so-called "garden variety" corrections can cause fear levels to spike.

The good news? Not every correction turns into a more feared bear market, a 20% or higher drop. The average bear since 1929 has sliced nearly 40% off the S&P 500.

Most bear markets coincide with a recession. In the 23 corrections since World War II the average price drop for the S&P 500 has been 14 percent, according to data from CFRA. They normally last around 4.4 months.

In short, we may not be in the clear just yet. Political uncertainty, combined with concerns about the coronavirus, could lead to continued volatility in the markets. However, we believe it’s best to stay invested and focus on long-term goals while we wait for recovery.

Please give us a call if you have questions or want to discuss your portfolio.