Stocks Move Into A Correction

Posted by lplresearch

Wednesday, February 23, 2022

For the first time since March 2020, the S&P 500 Index officially moved into a correction, down 10.3% from the recent highs. Of course, many stocks have already been in a correction, with some even in bear markets. This is yet another potential worry for investors, but should it be?

“Let’s remember the S&P 500 averages about one 10% correction a year. Given it has been nearly two years without one, you could make the argument stocks were definitely due,” explained LPL Financial Chief Market Strategist Ryan Detrick.

View enlarged chart.

What now? The good news is stocks do quite well after corrections. As shown in the LPL Chart of the Day, this is the 33rd correction or bear market for the S&P 500 since 1950. “As uncomfortable and frustrating market corrections can be, investors need to remember that future returns after such pain can bring a lot of gains,” added Ryan. In fact, after previous corrections and bear markets, the S&P 500 rose nearly 90% of the time a year or two later, with very strong returns.

View enlarged chart.

With the economy still strong and many signs of over-the-top negative sentiment, we doubt the S&P 500 will move into a bear market (down 20% or more), with a major low likely coming fairly soon. Here we show all the 10-15% corrections since 1980. Again, strong future returns are normal.

View enlarged chart.

For more on the recent market volatility, inflation, monetary policy, and some favorite charts, please watch the latest LPL Market Signals podcast with Scott Brown and Ryan Detrick, as they break it all down.


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All index and market data from FactSet and MarketWatch.

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