Corrections usually don’t amount to much: Chart of the Week
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The S&P 500 (^GSPC) narrowly entered correction on Thursday, meaning the benchmark index has retreated 10% from its last all-time high on Feb. 19.
But whether the S&P 500 has officially reached a technical term used to describe a drawdown is perhaps really neither here nor there. The key question of course is how often sell-offs like this keep getting worse. Friday offered at least a very temporary answer to that with the S&P 500 rising more than 2.1%%, the Dow Jones Industrial Average (^DJI) gaining 1.7%, and the Nasdaq Composite (^IXIC) 2.6%.
Interestingly enough, research from Carson Group chief markets strategist Ryan Detrick shows that 10% corrections not only happen quite frequently but often end up being the main event instead of extending to a bear market, defined by a 20% drop from an all-time high.
Detrick’s work shows that since World War II, the S&P 500 has experienced 48 corrections. However, only 12 of those corrections have turned into bear markets, meaning 75% of the time, a correction doesn’t spiral all the way down to a bear market.
“Maybe we go into a correction, but we do not see a bear market coming,” Detrick told Yahoo Finance. “Early in the post-election year, choppiness is normal and that’s kind of what’s happening.”
The swift nature of the recent pullback is also typically a good barometer for how the index bounces out of correction, according to BMO Capital Markets chief investment strategist Brian Belski. In a research note on Friday, Belski highlighted that outside of the pandemic, no correction since World War II that happened as quickly as the current one has led to a bear market.
“These types of corrections that happen this fast go right back up and recover just as fast, if not more,” Belski told Yahoo Finance. He added this makes him “very comfortable” with his 6,700 year-end target for the S&P 500.
“In terms of fundamentals, they’re still flashing green, not yellow, not red,” Belski said.
A message that was clear on Friday.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
