Market Correction: By The Numbers
By Allison Schmidt, CFP®, CPA
Last week, we saw two 1,000 point dips in the Dow Jones Industrial Average.† Despite the terrifying headlines in the media, on a percentage basis, neither of these days actually make the top 30 worst days in the market. But that doesn’t change the fact that declines like these can be jarring and negative volatility is something we really haven’t seen in almost 2 years, looking back to the market correction in February of 2016.*
Steve & I wanted to send along a couple data points to put the current move in perspective to start the week.
By the Numbers:
357
According to investment firm, Deutsche Bank, this is the number of days on average between stock market corrections, so about once a year. The US economy has natural peaks and valleys, and the stock market tends to follow suit, posting ups and downs over time. It’s a very natural part of the market cycle that can create a buying opportunity for long-term investors.
714
The number of days since the previous 10% correction, which ended on February 11, 2016. This is two times longer than the historic average of a 10% market correction every 357 days.*
100%
Percentage of Bull Markets over the last 40 years that have had a correction.*
76.9%
Percentage of companies that have reported Q4 2017 earnings and have beaten estimates, as of February 8th. Earnings are up 17.0% from a year ago**. According to Brian Westbury Chief Economist at First Trust Portfolios, this double-digit earnings growth is forecast to continue through 2018, even with higher interest rates. Corporate balance sheets are stronger than they have been in decades. We feel market and economic fundamentals remain strong moving forward.
-6.88%
Percentage decline in our HD Moderate Growth portfolio as of the market low at the close Thursday, February 8th, where the S&P 500 lost 10.17% & DOW lost 10.36% over that same time period. We build portfolios to be prepared for corrections, pullbacks, and bear markets using diversified asset allocation. As you’ve seen over the last week, corrections happen very quickly, it’s important to have the safety measures built into the portfolio from the beginning.††
11.80%
Annual percentage return if you would have invested just before the worst day in the market, Black Monday, October 19, 1987. The market declined 22.61% in a single day. That would be the DOW dropping by more than 5,000 points today. To give some perspective if you invested $10,000 on October 1, 1987, that investment would be worth over $287,000 today.^^
Corrections can take days, weeks, or even months to play out, but market & economic fundamentals haven’t changed. We’re very confident that those who stay steady and stick to their individually crafted plan will reap the benefits of higher balances over time. Volatility, although uncomfortable at times, is necessary to pursue the required returns to meet your financial goals. Please don’t hesitate to reach out.
* forbes.com
**First Trust Portfolios research obtained on 2.9.18
^Financial calculator from dqydj.
^^ Calculated via morningstar.com. This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
††This refers to past specific recommendations of HD Wealth Strategies. For further details on past recommendations, please contact our office at 720.287.0918.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of recommendations for any individual. All performance referenced is historical and is no guarantee of future results. The opinions expressed in this material do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing, including stocks, involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. The S&P 500 is a stock market index that tracks the 500 most widely held stocks on the New York Stock Exchange or NASDAQ. All indices are unmanaged and may not be invested into directly. Any named entity, HD Wealth Strategies, and LPL Financial are not affiliated. This information is not intended to be a substitute for specific individualized advice.
