Finally a Market Correction
And why this is a good thing.
The stock market keeps sliding down. As the S&P500 has dropped more than 10% last month, it goes from a mere pullback to the market correction territory. Expected interest rate hikes in 2022, the highest inflation in 40 years, winding down the quantitative easing programme faster than planned, and geopolitical tensions between Russia and Ukraine are all fuelling the sell-off.
No reason to panic
A market correction refers to the decline of the stock market by 10% or more. On average, the stock market loses 13% during a correction and lasts only 4 months. When a correction will start and when it will exactly end isn’t predictable, but after the S&P500 had been inflated to 106% since its crash in March 2019, it was about time for a market correction. This is only a bump in the road while building your wealth, as the stock market always recovers. Thus investors who are invested long term should not worry. A market correction is only the stock market recalibrating itself to healthy levels.
As many stocks are being sold off at lower prices, this can present perfect opportunities to buy stocks at a discount. Be sure to read about fundamental and technical analysis and metrics that help you to choose which companies to invest in.
Usually, small-cap, growth- and technology stocks are hit harder during a correction or bear market compared to retail and consumer stocks of companies that sell products. Also, real value stocks in commodities or real estate tend to perform generally better in volatile markets, as these stocks are less volatile and often provide a dividend.
The stock market experiences a market correction only once every 19 months on average and each time the market rebounds and comes back stronger than before. A market decline leads to panic and overselling of stocks on the one hand, but on the other hand, it creates value buying opportunities for the observant investor.
Be fearful when others are greedy and be greedy when others are fearful — Warren Buffett