The 10% Correction Has Finally Arrived!

Today we have seen all three U.S. stock indices (the Dow Jones Industrials, the S&P 500 and the NASDAQ) trade down greater than 10% from their highs this year. It has been approximately four years since this has occurred, even though historically this occurs on an almost annual basis. To give some additional perspective, analysts at Bank of America Merrill Lynch note that pullbacks of 5% or more occur three times a year on average. As such, we were long overdue for a correction.

That being said, the recent drop in the U.S. and international stock markets has grabbed the headlines, and there is no escaping all the talking heads trying to get your attention. However, this recent downturn is not unusual at all. Bottom line, corrections let some steam off and create better pricing for those investors who've been on the sidelines with cash. Also, I have read several articles and heard several market pundits note that rapid declines in stock prices brings fear to the forefront.  Consider this, I can remember as a kid getting a cut or scrape and having a bandage put on to help it heal. When it came time to pull that bandage off, it hurt.....a lot! Thus, in many cases it was less painful to rip it off and deal with a few seconds of intense pain rather than slowly pull it off and suffer through the long process. Stock market declines can be similar. Oftentimes, the faster the decline, the quicker the recovery.

I don't want to make light of what has occurred; however, I do want to bring some perspective and let you know that panic is not in my vocabulary, as it relates to the stock market currently. Secondly, the vast majority of investors  are not 100% in stocks, but are diversified in a variety of asset classes.

Thus, the following three videos give some great perspective on what other investment professionals feel about what is currently occurring in the stock market, and how it relates to long-term historical patterns. I strongly recommend you take the time to view them. All three combined won't take more than say 8 to 10 minutes, but I believe will provide you with some insight that can be reflective on what is occurring versus reactive.

Video 1) appeared on CNBC today: Market lets off steam

Video 2) appeared on CNBC Friday: Market pullback 'healthy'

Video 3) appeared on CNBC on August 10, 2015. Ironically, Professor and Market Historian, Jeremy Siegel, stated at that time that he saw market volatility in the coming weeks, but still believed that stocks would rebound and move higher thereafter: Potential correction could be 'very rough'

Quotes    

“Buy a business, don’t rent stocks."

"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."

"We don't have to be smarter than the rest. We have to be more disciplined than the rest."

                   Warren Buffett

Quotes selected by the IAG staff

"So the pie isn't perfect? Cut it into wedges. Stay in control, and never panic."

                   Martha Stewart

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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