Here’s a quick refresher: a correction is defined as a decline of 10% or greater from a recent high in the financial markets. Corrections can last anywhere from days to months, but few have lasted longer. Recently, we’ve seen a bumpy ride, and I wanted to reach out to give you some context.1
Stock prices have bounced in-and-out of correction territory, as investors have heard hints from the Federal Reserve that the central bank will take aggressive action to slow down the jump in consumer prices. During periods of volatility, it’s important to remember that stock market corrections are not unusual and represent a normal part of the investing cycle.
A Reality Check
While significant market downturns can certainly be unsettling, it helps to view corrections from a wider perspective. For example, between 1980 and 2020, the S&P 500 has experienced 17 corrections.2
If we widen our gaze further, we can see that as of 2021 there have only been 27 market corrections since World War II. Past performance can’t predict future market results, but markets have still managed through the process of price corrections.3
Corrections remind us of a reality we don’t like to think about: stock prices can’t always go up. When prices drop, it can be tempting to give in to our emotions and react, but patience and caution may be warranted.
Your investment strategy has been created to reflect your time horizon, risk tolerance, and goals. As an investor, getting through a correction means having the poise to ride out short-term volatility. I’ll be paying close attention to market developments in the coming days and weeks. In the meantime, feel free to call me or email me if you have any questions or concerns.
1. Investopedia.com, January 24, 2022
2. Investopedia.com, January 24, 2022. The Standard & Poor’s 500 is an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
3. Forbes.com, September 20, 2021