This Stat May Calm Those Stock Correction Jitters

Number of the Day: The most relevant or interesting figure in personal finance

14.7%

That’s how much the S&P 500 rebounded, on average, the six times the benchmark stock index fell into a so-called correction in less than a month.

On Monday the S&P 500 narrowly averted ending the day in correction territory—meaning at least 10% lower than its record high—in just 14 trading days. But the threat remains as it becomes clearer the Federal Reserve is set to raise benchmark interest rates this year, perhaps several times. 

If there is a quick correction, here are two useful statistics to note, according to Ryan Detrick, chief market strategist at LPL Research. 

First, the S&P 500 has only fallen into correction territory in less than a month (defined as 21 trading days) six times in its history, according to LPL’s analysis. (Had it not rallied at the end of the day, Monday would have been the seventh). Second, for each of those six times, it was up three months later, and on average, up 14.7% six months later. The rebounds varied: as much as 24.8% in 1997 and as little as 1.3% in 2000, Detrick said in a tweet.

The S&P 500 was in correction territory most of Monday, at one point down as much as 12% from its Jan. 3 record high close of 4,796.56 on Jan. 3. But it ended the day at 4,410.13, down 8.1% from that high.

The rapid deterioration in the stock market this month (last week was its worst since the initial pandemic onslaught in March 2020) stems from fears the Fed will have to act more aggressively than originally anticipated to combat soaring inflation. The Fed’s rate-setting arm, set to meet this week, is expected to raise benchmark interest rates for the first time in years this March, and perhaps finish the year with at least four rate hikes.

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Article Sources

  1. Twitter. “@RyanDetrick, 12:21 p.m. Jan. 24, 2022. (https://twitter.com/RyanDetrick/status/1485664016177504263).” Accessed Jan. 24, 2022.

  2. Yahoo Finance. “S&P 500 (^GSPC) Historical Data.” Accessed Jan. 24, 2022.

  3. LPL Research. “Potential Catalysts for a Turnaround.” Accessed Jan. 24, 2022.