The sell-off in stocks has reached a new level in market lingo: a correction. After tumbling in recent weeks, the Standard & Poor’s 500-stock index closed on Thursday in that territory.

What is a stock market correction?

A correction is a 10 percent drop in stocks from their peak. Since Jan. 26, the S.&P. 500 has fallen 10.16 percent.

In some ways, 10 percent is an arbitrary threshold. But it often signals that investors have turned more pessimistic about the markets.

Does this mean stocks are headed down even further?

Not necessarily.

Over the past 20 years, there have been 10 corrections in the S.&P. 500, including the current one, according to Yardeni Research. The previous correction ended in February 2016.

Of those corrections, only two have turned into bear markets:


Start date

Duration

High

Low

Change

7/17/1998

45 days

1186.75

957.28

‐19.3%

7/16/1999

91

1418.78

1247.41

‐12.1%

3/24/2000

929

1527.46

776.76

‐49.1%

11/27/2002

104

938.87

800.73

‐14.7%

10/9/2007

517

1565.15

676.53

‐56.8%

4/23/2010

70

1217.28

1022.58

‐16.0%

4/29/2011

157

1363.61

1099.23

‐19.4%

5/21/2015

96

2130.82

1867.61

‐12.4%

11/3/2015

100

2109.79

1829.08

‐13.3%

1/26/2018

13

2872.87

2581

-10.2%

Wait. What is a bear market?

It is a more severe and usually more sustained downturn in the market, when stocks drop by at least 20 percent.

The last one, during the financial crisis, lasted until March 2009. Then, the S.&P. 500 sank nearly 57 percent from peak to trough, according to Yardeni Research.

Continue reading the main story



Source link