A Volatile Week in Perspective
Compared to the roller coaster of the previous 4 days (and much of the prior week too), today was tranquil in the U.S. stock market. The S&P 500 wiggled around Thursday's close and ultimately ended a shade higher. The media spent a lot of ink and airtime this week on the market turmoil. Headlines prompted people who normally don't pay attention to login to their accounts and witness the sea of red overtaking their balances.
Unfortunately, many of these people extrapolated a doomsday into a doomsyear and panicked out of the market. In the week ending Wednesday, there was an almost $30 billion outflow from equity funds. This money got out just in time to miss the rally that started in the final market hours Wednesday and that continued through Thursday.
We certainly may not be out of the woods. But today's breather offers a good opportunity to reflect. At its nadir on Tuesday, the S&P lost 12.4%, the largest decline since 2011.
And much was made of it being a "correction" i.e. a double-digit percent decline. But that actually isn't all that unusual. Nineteen of the previous 35 years have featured an S&P 500 correction.
This was the third correction a little over halfway through this decade. At this pace, the 2010s will have 5 corrections, which would be the most since the 1970s, but by no means a dramatic increase in frequency.
It's way waaaay waaaaaaaaaaaaaaaaaaay too early to write this correction's obituary. The point is that the downturn was not unusual when viewed from the grand scope of history. So, investors should not treat it as such.