Odds and Depth of Stock Market Correction
Posted September 1, 2015on:
As of today, all three market indices Dow Jones, Nasdaq and the S&P 500 are in correction territory, meaning they’ve all fallen more than 10%. Last time this happened was in 2011. Then I wrote an article “How Often Does Market Correction Happen?” to calm the nerve of my clients and readers.
The key insight from that article is this. A 10% correction happened every other year in history, so you shouldn’t be surprised by it, nor should you be panic. In particular, this 10% correction is kinda over-due since that last one was 4 years ago.
In addition, don’t be surprised by a 20% correction over the next month and a half. The last time we had a 20% correction was in 2009. That was 6 years ago. In history, a 20% correction happened every other five years, give and take.
The bottom line is this, corrections are parts and parcels of the stock market. They should be expected.
Just like periodic sales announced by major department stores, the stock market has it’s own periodic sales as well, though the timing, during and depth of the sales are not announced in advance. Nevertheless, whatever you do when department store sales are going on, you should do the same when stock market “sales” are going go.
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