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How Normal Is This Correction?

| February 13, 2018
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The S&P 500 Index officially pulled back into correction territory last week for the first time since early 2016. The widely accepted definition of a correction is a 10% decline from the most recent high. What made this correction so unique is that it was the first time the S&P 500 has ever gone from a new all-time high to a correction in nine days or less.

Nonetheless, after one of the most tranquil equity markets in history last year, seeing a pickup in volatility in 2018 shouldn’t be a surprise. In fact, a continuation of the bull markets amid higher volatility was one of the main themes in Outlook 2018: A Return of the Business Cycle.

We looked at all 36 S&P 500 corrections since 1980 last week, but we also think the max intra-year pullback, along with the total return for the S&P 500 for each calendar year starting in 1980, provides a few more helpful takeaways:

  • The average max intra-year pullback is 13.7%; compare that to 2017’s 2.8%.
  • Half of all years (19 out of 38) saw at least a 10% correction during the year.
  • 13 of the 19 years with a correction finished higher on the year.
  • The average total return for the S&P 500 during a year that had a correction was 7.2%.

“The reality is a 10% correction is quite normal. In fact, years that have a correction but don’t fall into a recession tend to bounce back and usually finish green for the year. With our analysis suggesting a small chance of a recession over the next 12 months, recent weakness could prove to be a buying opportunity for long-term investors,” according to Ryan Detrick, Senior Market Strategist.

For more on the recent pullback, what happened, where we could be going from here, and what investors could do; be sure to read what John Lynch, Chief Investment Strategist, wrote in our latest Weekly Market Commentary coming out later today.


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The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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