Did we offically have a correction?

[Texas Proud]

Just curious if we officially had a correction last month?

I had read that some of the indexes were down 10% at some point in time, but did this qualify as an official correction?

Heck, who makes the call?

I know that a recession is called by National Bureau of Economic Research, but they are usually very late in making that call...

Just curious....

 

[NW-Bound]

Yes, a recession is dated officially by the NBER, which "defines an economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

A stock market correction, as I know, is more objective, and defined as a drop of 10% or more from the recent market high.

On Jan 26, 2018, the S&P closed at 2873. On Feb 08, 2018, the S&P closed at 2581. That latter number is lower than 2873*0.9 = 2586.

So, we did have a correction.

 

[W2R]

Thanks for the explanation.

OK, so that was a correction. I've got to say that for me (and probably others) it was much less stressful than the "Great Recession of 2008-2009" was, although it did raise some concerns.

 

[Meadbh]

I was relieved, because I expected it, and wanted to get it out of the way.

 

[NW-Bound]

A market correction may not correspond to a change in economic fundamentals. Mostly, it is caused by skittish investors wanting to lock in some gains. Selling begets more selling, and a small drop due to some benign negative news becomes an avalanche.

A market correction can also be triggered by investors expecting bad news ahead. Like the next one that some people are talking about already, right now.

 

[aja8888]

I was relieved, because I expected it, and wanted to get it out of the way.

Are we sure it is over? Or is Mr. Market just playing with us?

 

[RobbieB]

Today it's 2786 so that's two thirds of a recovery eh?

Whatever.

 

[Onward]

I know that a recession is called by National Bureau of Economic Research, but they are usually very late in making that call....

Economists have predicted 9 out of the last 5 recessions.

 

[joeea]

I was relieved, because I expected it, and wanted to get it out of the way.

"Out of the way" of course doesn't mean that more significant drops won't happen.

 

[joeea]

Are we sure it is over? Or is Mr. Market just playing with us?

It's never "over".

 

[joeea]

OK, so that was a correction. I've got to say that for me (and probably others) it was much less stressful than the "Great Recession of 2008-2009" was, although it did raise some concerns.

One would expect a "correction" to be much less stressful than a "Great Recession"!

 

[audreyh1]

Just curious if we officially had a correction last month?

I had read that some of the indexes were down 10% at some point in time, but did this qualify as an official correction?

Heck, who makes the call?

I know that a recession is called by National Bureau of Economic Research, but they are usually very late in making that call...

Just curious....

Yes.

There is not official body. Just a naming convention. But the math is simple.

I though all the indexes were down 10%. But I think usually folks (press, analysts) refer to the DOW or the S&P500 when they call it a correction, and I believe both met that criteria.

Another question is whether you can intraday swing or closing prices. But if the closing prices still make the measure nobody argues.

It usually takes about a year after the start of a recession for the National Bureau of Economic Research to call it. And it doesn't have anything to do with stock prices, but rather economic expansion/contraction cycles usually measured by the US GDP.

What's over? It's never over. Usually there is a retest. There are lots of reasons why more sell-offs can occur.

 

[DrRoy]

Thanks for the explanation.

OK, so that was a correction. I've got to say that for me (and probably others) it was much less stressful than the "Great Recession of 2008-2009" was, although it did raise some concerns.

The market of 2008-2009 was far beyond a correction, even far beyond a bear market, which is a decline of at least 20% from a high. The Great Recession bear market was down over 50%, which feels and is far worse than a correction. A correction usually happens approximately once a year, a bear market approx once every 3 years, and there have been three 50% down markets in the last 50 years.

 

[NW-Bound]

Are we sure it is over? Or is Mr. Market just playing with us?

Many call it a head fake. Time will tell.

Say the market goes into a slump again on Monday. For it to be called a correction, do we count 10% down from the Jan 26th high of 2873, or today's close of only 2787?

I think the convention is the most recent high. So, that would be today's close.

10% down, then a partial recovery, and another 10% from that lower high. Repeat that a few times, and we have a bear market. Nice, isn't it?

Sorry if I scare anybody.

 

[kgtest]

I think it takes a lot to rattle out a correction. Someone earlier rattled off in another thread how low the odds were out of the past 80yrs or so, and it was quite low.

Then again volatility is just that. I don't ever recall hearing headlines of "three corrections" in three months, or anything...certainly recession is different.

Would bad policy push us into recession, would bad policy push us into war, which pushes us into fear? I think if its fear based reaction to policy we are talking correction, if its actual fiscal reaction to bad policy, recession.

IF we do have some sort of a freak back to back correction, I hope the next one at least comes over a payday, so my DCA can catch the dip

 

[Gumby]

Is the correction over, or must we wait for the Dow and S&P to regain their previous high to say that? I would think the latter, but I'm no expert on the terminology.

 

[RobbieB]

To me it's 2 thirds over.

To NW we have 4 more coming and you just lost half your dough.

How do you think it is?

 

[DrRoy]

Many call it a head fake. Time will tell.

Say the market goes into a slump again on Monday. For it to be called a correction, do we count 10% down from the Jan 26th high of 2873, or today's close of only 2787?

I think the convention is the most recent high. So, that would be today's close.

Is the correction over, or must we wait for the Dow and S&P to regain their previous high to say that? I would think the latter, but I'm no expert on the terminology.

I believe you cannot say it is over until there is a new high. In longer or deeper declines the historical reference is always back to the last record high, not a later but lower peak.

 

[DEC-1982]

One would expect a "correction" to be much less stressful than a "Great Recession"!

And it was.

 

[FIRE'd@51]

On Jan 26, 2018, the S&P closed at 2873. On Feb 08, 2018, the S&P closed at 2581. That latter number is lower than 2873*0.9 = 2586.

The intraday low on Feb 9 was 2533 which was down almost 12% from its Jan 26 high.

 

[Dtail]

I believe you cannot say it is over until there is a new high. In longer or deeper declines the historical reference is always back to the last record high, not a later but lower peak.

+1

 

[marko]

Yes, a recession is dated officially by the NBER, which "defines an economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

A stock market correction, as I know, is more objective, and defined as a drop of 10% or more from the recent market high.

On Jan 26, 2018, the S&P closed at 2873. On Feb 08, 2018, the S&P closed at 2581. That latter number is lower than 2873*0.9 = 2586.

So, we did have a correction.

I've been wondering myself. So, even an overnight 10% drop (flash crash sort of thing?) would count as a correction?

 

[audreyh1]

I believe you cannot say it is over until there is a new high. In longer or deeper declines the historical reference is always back to the last record high, not a later but lower peak.

I think you can, because the 2000-2002 bear market is NOT called the 2000-2007 bear market.

Clearly there are other criteria used to say it’s over.

And people reference multiple corrections all the time without a new high being reached in the interim.

 

[Andre1969]

I've often wondered if a down period has to at least last a certain amount of time to be called a correction. With the Excel spreadsheet I use to track my investments, I used to track the peaks and lows, although I'd only save one data point for the month. But, starting in September of 2011, I simply saved the last data point for the month. That's probably smoothed out a lot of the turbulence, on my own timeline.

Anyway, the last thing that I would call a "correction", in my own experience at least, would be back in 2011. I hit a new peak on July 7, but by August 8 I was down 14.2%. That's simply a drop in net worth, and doesn't take into account additional investments. However, it represented a drop from around $659K to $565K, so anything else I put in that month wouldn't have swayed things much.

I haven't seen a drop of 10% or more since that period. However, if I only saved, say, the 7/31/11 and 8/31/11 data points, I wonder if that might have smoothed out even that drop?

FWIW, the most serious decline I've seen since that 7/7-8/8/11 period was in 2015. I had peaked in May, but by September was down about 7.5%. Again, that doesn't take into account additional investments, but that would've have been enough to sway the numbers.

I've heard though, that there was a 10% correction at some point in late 2015, and again in early 2016. For some reason, I'm recalling one in late 2014 as well, although the worst month-to-month decline my spreadsheet shows is 2.5%, from August to September 2014.

As for this most recent dip? Well, looking at it from January 31 through February 28, I only dropped 2.1%. I know that glosses over how turbulent that timeframe was, but even at the worst, I don't think I was down by 10%. Maybe 7-8%? March has been great, so far though. Yesterday's close puts me up about 4.2%, YTD. And unlike my other numbers, that's actually rate of return, rather than simply a rise in net worth. Of course, who knows...this "correction period" could just be getting started.

 

[Montecfo]

I was hoping for a re-test.