Market Correction Characteristics

The market is “certainly overdue for something,” according to a recent article in Barron’s. It also points out, however, that a correction is “likely to be a buying opportunity as long as the economy continues to hold up.”

The article points out that investors are concerned about a potential setback not just because of slow GDP growth and disconcerting headlines, but also due to “technical indicators.” As far as what a correction will actually look like, the article suggests it might start with a modest shift, such as the S&P 500 dipping below its 200-day moving average, but that such a break would probably usher in short-term weakness rather than signal the end of the bull market.

Offering data from Strategas Research Partners, the article reports that “since 1989, the S&P 500 has suffered drops of 10% or more 11 times without a recession or bear market, with an average tumble of 14.2% lasting 2.4 months,” and that those declines were followed by rallies of 16.5% during the three months that followed.