The History of Market Corrections
shows why investors should stay the course
February 3, 2018
Kathleen T. Owens, Registered Investment Adviser Representative, Fiduciary
Since 1980, there has been a greater than 5% correction in every year but two, 1995 and 2017.” It just so happens that the market waited until February 2018 to do what it does almost every calendar year. Investors can be reminded that corrections happen almost every year, but they still struggle to stick to their investment plan as they watch their personal accounts lose 10%, 15%, or even 20% of their value.
Market Correction History Lesson
Some historical context may help alleviate investors’ current and future concerns.
• Over the past 30 years, there have been 13 periods when climbing 10-year rates have resulted in 5% or greater market drawdowns. Over that time, the median interest rate increase is 75 basis points over a median 78 days. We are currently experiencing episode number 16. As of February 5, 2018, this cycle’s trough-to-peak move of interest rates was 80 basis points over 107 days.1
• The S&P 500 Index has experienced drawdowns in such periods, typically ranging from 5% to 10%. The average U.S. equity market decline is 9.5% over 31 days. The median decline is 7.7% over 28 days. Viewed through that lens, the 2018 correction is fairly standard.
• Six months from the beginning of the equity market decline, the median return of the S&P 500 Index is 3.4%; 12 months from the beginning of the equity market decline, the median return of the S&P 500 Index is 13.3%. Exhibit 2
The main point is that market corrections are common and typically, and only create losses for those who sell. Historically, markets tend to be above the pre-correction highs within months.