Are Stock market corrections inevitable?
Team Veye | 10-Apr-2022
People dealing in stock markets are aware that the stock market corrections are unavoidable. Market pullbacks are more common than some may think. Though there is no universal definition of correction, it is a general notion that when a stock index falls more than 10% from its recent top, it is said to have entered into a correction phase.
There can not be any certainty on whether a correction will reverse or move into bear market phase. However, historically most corrections haven’t become bear markets. There have been 24 market corrections since November 1974, and only five of them became bear markets (which began in 1980, 1987, 2000, 2007, and 2020).
By the beginning of 2020, COVID-19 had spread widely, initially in China and then to Italy, in Europe. It later escalated to many countries in all continents.
When the travel & tourism sector along with hospitality sectors began to feel the jerk, mandatory lock downs virtually brought all activities to a halt. The stock markets globally began to quiver. Dow Jones Industrial Average lost nearly 13% and the S&P 500 dropped 12%.
The stock market ultimately bounced back as e-commerce companies and pharmaceutical companies spurted in value. Many businesses had employees working remotely during the COVID crisis. This pushed the valuation of data and communication companies.
Stock market crashes leave an immediate pain. Beside battering economies, they shake the investors’ confidence too. In such situations, investors looking for safety find no safety. The smart investors, at such times, follow the strategy of making volatility a friend and play along.
Corrections follow across the board but bounce backs also happen as well, when the correction is over. Investors should look for quality stocks amid such sell offs.
The triggers for stock market corrections may vary. The result, till now, more or less, has been seen to be the same. Markets recovering and attaining new highs ultimately.
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