It’s now official: We are in a market correction
Yesterday, both of traditional measures of the overall US Markets dropped to levels that fit the textbook definition of a correction. The benchmark S&P 500 dropped 2.3% Monday, erasing its 2007 gains and leaving it 10.1% below its October 9th high (down .8% for the year). The other key benchmark, the Dow Jones Industrial Average fell 237.44 points to show a 10% decline since its October 9th high. The Dow still shows a gain of 2.2% for the year. The S&P 500 has been hit a little harder than the Dow primarily because it is more heavily weighted with financial stocks, which have declined more than the rest of the market.
Here are a few statistics and comments to put things into perspective (please refer to our prior blog on Corrections and Bear Markets):
- Historically, corrections are fairly common occurances -there have been 43 corrections since World War II. Corrections have occured less frequently since the 1990’s. The last correction we had was in 2003.
- The average correction is a decline of 15% off of a market high.
- One in four corrections turn into Bear Markets (market declines of 20% or more) according to Ned Davis Research in Vinice, Florida.
- The length of time from the market high on October 9th to yesterday was less than 50 days. The last 16 corrections have averaged 148 days to the low point, and 111 days to recover back to the original high point in the market.
A final note: the label market correction is important to near term market performance because it is indicative of a broad drop in the market and it has a near-term impact on investor behavior.
