On Market Corrections

Go over to Visual Capitalist and take a look at their Infographic "The Anatomy of a Market Correction".  It's a pretty cool presentation on what happens when stocks decline.....And stocks do decline.  The average volatility in markets is now somewhere between 12-15%.  That means at some point stocks will experience a decline from their highs between 12-15%.  Many investors often don't remember this when sifting through December statements because most run of the mill corrections usually take place in the middle months of the year.  In that regard 2018 was an outlier as stocks corrected significantly in the 4th quarter.  This year markets have corrected from their peak about 6-8%.  That still left major market indices with returns in 2019 that would be above their long term average returns if the year ended May 31 instead of December 31.  Here's some interesting facts about market corrections from the article via Fisher Investments.

The average market correction looks something like this:

• Frequency:
  On average, there is one market correction that occurs each year
• Length:
  The average correction lasts for 71.6 days
• Depth:
  The average correction involves a 15.6% decline
• Impact:
  A correction often results in increases in uncertainty, volatility, and media alarmism.

In the current bull market, there have already been eight corrections. The most noteworthy of these went from May 21, 2015 until February 11, 2016 and resulted in a -18.9% fall in stock prices.

Corrections are inevitable.  Best to accept them as part of the price you pay for longer term hopefully superior market returns.  Most corrections don't morph into full fledged bear markets.  You usually need an exogenous shock or a financial crisis for that to occur.  Whether we're still in the midst of a correction or it's already peaked only time will tell.  But so far there's no indication that the two ingredients necessary for a gut wrenching bear market akin to 2007-2009 are in place.