Financial education, no lectures.
Get the app

Join millions of investors on Stash

Investing, simplified

Start today with as little as $5
Get the app
Teach Me

What’s a Market Correction?

February 08, 2018

  • Markets enter correction territory when they fall 10% or more from a previous high.
  • 10% drops occur about once a year during normal times, according to experts
2 min read

On Thursday the stock market officially entered correction territory, with the Dow Jones Industrial Average index plunging more than 1,000 points in afternoon trading.

The S&P 500 and the Nasdaq, two other key indexes, also fell by about 4%, according to reports. They also experienced corrections.

So what is a correction?

Markets have corrections when they fall 10% or more from a previous high. The Dow and other indexes have been on a wild ride all week. On Monday, the Dow fell 1,200 points–it’s biggest single-day point loss in history–but the index then regained much of what it had lost by Wednesday.

So here’s the math on Thursday’s close: The Dow ended its session at 23,849. In January, it reached a record high of 26,616, meaning the Dow has now fallen by more than 11% from its previous high.*

Indexes enter a bear market–a more serious occurrence–when they drop 20% or more, as happened in the months following the financial crisis in 2008 and 2009, when equities lost approximately half their value.

In and of themselves, corrections aren’t something for investors to panic about, according to experts.

In fact, 10% drops occur about once a year during normal times, Savita Subramanian, head of the United States Equity and Quantitative Strategy team at Bank of America Merrill Lynch told the New York Times on Thursday.

What’s causing it?

Some of the factors causing indexes to fall recently are fears about rising interest rates, inflation, and a strong employment picture where wage growth could cause inflation to rise.

The Federal Reserve, the nation’s central bank responsible for setting monetary policy, has been increasing interest rates for the past few years. It did so in twice in 2017; And it’s expected to raise rates again in 2018.

Businesses, investors, and financial experts fear that rising interest rates and inflation could have a negative impact on the economy and the stock market.

Source: Yahoo Finance, February 8, 2018

By Jeremy Quittner
Jeremy Quittner is the financial writer for Stash.

Next for you
Look Before You Sell, Don’t Lock in Your Losses
Explore more articlesChoose a topic to learn more about
Technology budgeting Careers pop culture market news

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit