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How long do down markets stay down? 🔻

Corrections have been a regular occurrence in the stock market for decades. With the S&P down 16.63% YTD and Nasdaq down 26.43% YTD, you might be wondering how current events compare to historical precedents. #HistoricalContext #Corrections #WednesdayReading

Image source: Morningstar

In the midst of a decline, it’s nearly impossible to tell if you’re experiencing a dip or a prolonged correction. If you look at the average frequency and recovery time of past down cycles though, you’ll notice that stock market corrections are not uncommon.

S&P 500: 1952- 2021

  • 5%+ drops: historically happen 3x a year, taking 43 days to return back to highs
  • 10%+ drops: historically happen once a year, taking 110 days to return back to highs
  • 15%+ drops: historically happen every 3 years, taking 251 days to return back to highs
  • 20%+ drops: historically happen every 6 years, taking ~1 year to return back to highs

Zooming in on the past 20 years (2002- 2021), you'll also see that corrections of 10%+ happened 10 times out of those 20 years.

Image source: Morningstar

So, what does this mean?

  • Long-term investors look at historical trends and understand that short-term drops are to be expected, and in fact are more frequent than some may think.
  • Downturns can impact stocks differently, depending on their sector or size. These are good moments to freshen up on diversification, which is a way to spread your exposure across various kinds of investments.
  • Nobody can predict the markets, and downturns don’t happen on an even schedule. But understanding the past can help you contextualize the present.

**Not investment advice. Past performance does not guarantee future results.

Sources used for reference/fact-checking:

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