In today’s DueNorth Insight, we’re going to discuss everyone’s favorite topic of market volatility, pullbacks, corrections, and bear markets. These are all buzzwords used when the market begins to decline and can cause investors much anxiety. Volatility is characterized as periods of rapid and unexpected price movements in a market or security. It often gets a bad reputation and is only referenced in declining market environments but can also be used to describe sharp market increases. While sometimes unsettling, volatility is a totally normal part of long-term investing.
A pullback is defined as a 5-10% drop off of recent highs. They are very short in duration and do not impact market sentiment or outlook.
The next step is a correction. A correction is a downward movement of 10-20%. Longer lasting than pullbacks, corrections last anywhere from a few weeks to a few months. Corrections are not uncommon and in fact there have been 10 corrections in the last 20 years.*
A bear market is a prolonged market decline of greater than 20%. They are periods of negative investor sentiment and market pessimism lasting a few months to a few years.
More infrequent than both pullbacks and corrections, there have been 5 bear markets since 2000.** Investors become risk averse and favor more stable investments. All of the topics that we just referenced are reasons to have a diversified investment portfolio and frequently review your financial plan and personal risk tolerance. Reviewing your risk tolerance will allow you to have the confidence
that you’re ready to weather all market climates. And that’s today’s DueNorth Insight.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly
*Market Corrections Are More Common Than You Might Think | Charles Schwab