The Correction

The market has fallen in October; something that was expected, not only was it expected but most investors should welcome the weakness. Corrections are normal and health restoring to a sustainable Bull market. When stocks only go up, and keep trying to reach the sky, there has been a collapse that followed and it can easily wipe out 50% or more of the gain. A correction of 10% to 15% means that the weak hands, the worriers, are out and the rest of us just sit back and watch.

New money in the form of 401Ks and IRAs will help support the market. A strong underlying economy also helps. Those that fled will come back slowly so there is plenty of reason to think that the bull market is not over.

It will end someday, and likely just before the next recession, but the odds are this is not the time. The old truth of buying when there are sellers and sell when there are buyers applies. If you have not already prepared for this correction it is likely to late to do so.

What Are Corrections?

There are two major phases in the movement of stock prices. We call them Bull and Bear markets. In either a long term general trend up or down is established. The phases are generally defined as movements of 20% or higher. These can last for years and sometimes, though rare, decades. The longest Bear market lasted from 1929 to 1953. The longest Bull market lasted from 1990 to 2000 after which the tech bubble burst, throwing us into a 3 year Bear market. From that a Bull phase took over and ran to 2007. The current Bull market started in 2009.

During these long Bull and Bear markets there are corrections. These are moves up or down that generally are defined as about 10%. They restore health to the long market trends. In the current bull market there have been a number of corrections; the flash crash of 2010, when the DOW fell and recovered 1,000 points within an hour, Black Monday of 2011 down 6.7%, Summer Crash of 2015 in August with a fall of more than 10% and the slow selloff of 2016 where the S&P 500 fell 14%. From all these correction the Bull remained intact.