What a Market Correction Means for You
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 on what this might mean for you.
Stock prices have bounced in and out of correction territory as investors attempt to measure the economic impact of COVID-19. 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.
Coordinated Response. There’s little doubt the coronavirus presents a challenge to the global economy. Already, we are seeing a coordinated response from healthcare organizations and federal agencies. On March 2, 2020, the Federal Reserve cut short-term interest rates by half a point, and the International Monetary Fund and G7 officials pledged to support economies impacted by the outbreak.
A Reality Check. While significant market downturns can certainly be unsettling, it helps to view corrections from a wider perspective. This is the 7th correction the stock market has seen within the last 10 years. You may remember late 2018, when the market benchmarks fell nearly 20% when the Federal Reserve continued to raise shorter-term interest rates as the U.S. economy strengthened.
In fact, if we widen our gaze further we can see that this is actually the 27th market correction since World War II. Past performance can’t predict future market results, but markets have still managed through the process of price corrections.
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.
Strategically Strong. 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.
Footnotes, disclosures, and sources:
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2020 FMG Suite.
1 CNBC.com, March 3, 2020
2 Acorns.com, February 27, 2020
3 CNBC.com, February 27, 2020