A primer on stock-market corrections

It’s official: thanks to this past week of jaw-dropping declines, the stock market is now in a correction.

It’s a strange word, correction. It’s both shocking, suggesting a sobering smackdown of equities, and at the same time comforting in a way, because to ”correct” something means to fix it, to make it better.

Either way, with both the Dow Jones industrial average and the more-important Standard & Poor’s 500 index plunging off their historic highs, we now find ourselves in correction territory, destined to wait things out and see if stocks fall further still or get ”corrected” and lift us back toward the irrational exuberance we were all approaching just two weeks ago.

Here’s a primer:

What is a stock market correction?

A “correction” is a Wall Street term for when an index like the Dow industrials or the Nasdaq — or an individual stock — falls 10 percent from its most-recent high. The Dow fell 1,032.89 points Thursday to 23,860.46, which is 10.4 percent below its record close of 26,616.71 set on January 26. A correction is not the same as a bear market, which is defined as when a stock index or individual stock falls 20 percent from its most-recent peak.

Is the entire stock market in a correction?

Two of the U.S. stock market’s three major indexes are in correction territory now. The S&P 500, the index that investors pay the most attention to, is in a correction, down 10.2 percent from its recent high. The Nasdaq composite is close, but not all the way there, down 9.7 percent from its record.

When was the last time we had a correction?

The last correction for the S&P 500 ended in February 2016, when worries about a sharp slowdown in China’s economic growth rattled markets around the world.

Can corrections be a good thing?

Even the most bullish of …read more

Source:: The Mercury News – Business

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