Why A Big Stock Market Sell-Off Is No Reason To Panic
We can't help but ask these questions when we see stocks take a tumble from their highs.
Currently, the S&P 500 is down 2.8% from highs set last week. The Nasdaq is down 6.9% from highs set last month.
If we look to history, things could get much worse before they get better. But this doesn't mean we're doomed for a crash.
Here's an excerpt from Rich Barry's NYSE MAC Desk Mid-Day Update:
In light of the fact that floor traders and the talking heads on the financial networks are sounding a bit "panicky" today about the recent sell-off in equities, we think that now is a good time for a little history lesson on "market corrections". Corrections are a normal feature of the stock market, and they are healthy for the market. Since we haven't experienced a correction since late 2012, market-watchers need to be reminded of their frequency. Since 1900, checkout these stats on how frequently corrections occur on average:
1.- 5% market corrections: 3x per year.
2.- 10% market corrections: Once per year.
3.- 20% market corrections: Once every 3.5 years.
Those are the rough numbers.
JP Morgan Funds' David Kelly offers this chart of intra-year declines that every investor should pin to their walls.
Bottom line: Sell-offs happen. And sometimes they're big. But they're normal. And they're certainly no reason to just bail out of the stock market.
