For nearly 10 years now, the stock market has been practically unstoppable. Both the 122-year-old Dow Jones Industrial Average and the S&P 500 quadrupled earlier this year from their March 2009 lows. Many investors, who have held throughout a couple of interruptions since then, have been handsomely rewarded.
October started the return of heavy short-term market turbulence and volatility. This has made it challenging for many investors. Since hitting its all-time highs, the Dow Jones has also seen correction territory (defined as a decline of more than 10%). The S&P 500 has also hit correction territory with a drop of over 10% from its all-time intraday high. Additionally, the technology-heavy Nasdaq Composite has seen tougher times with declines of over 15% since hitting its peak.
With the current market volatility in mind, review some timely information that may help ease investors’ concerns.
Market corrections are more common than many investors realize.
Market corrections (declines of 10% or more from a recent high point) are far more common than most people think. Since the start of 1950*, the S&P 500 has undergone 37 corrections of at least 10%.
According to the data from the market analytics firm Yardeni Research, the S&P 500 has had quite a few other dips in the high single-digit percent range. This is an average of one correction in less than every two years. Although the stock market does not follow a straight path to averages, this demonstrates just how common declines are.
It is almost impossible to exactly pinpoint when corrections first occur.
Despite being so common, market corrections can come without warning and can be nearly impossible to exactly figure out when they officially start. Most analysts feel that, only after a correction hits, does it become clear what caused it.
Short-term traders tend to be impacted most during corrections
Stock market corrections do not often affect long-term investors as much as short-term traders. This is because many long-term investors are not going to head to the sidelines when a 10% drop, or greater, occurs. Overall, short-term traders are the group that is most affected during corrections.
Bear markets are part of the investment experience.
A bear market is normally defined as a drop of 20% or more in stock prices. By this definition, there have been 25 bear markets since 1929 according to Bloomberg. This means markets have averaged one bear market roughly every three and a half years or so.
Our primary goal is to align your investments to your time horizons. We appreciate the confidence clients have in our firm.
Please have a happy holiday season and try not to get too immersed in the day-to-day roller coaster ride we call the stock market!
*The modern design of the S&P 500 stock index was first launched in 1957.Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.
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Past performance is no guarantee of future results. Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee a return or eliminate risk in all market environments. All indices are unmanaged and cannot be invested into directly. Sources: AWealthof CommonSense.com; www.fool.com.
