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The Market Tanked…But Was It Really That Bad?

A MarketWatch headline last Friday said it well: “U.S. Stocks End the Week in the Basement”.

That’s a pretty good assessment of last week’s market action. The Dow lost -5.8% for the week, marking its biggest weekly drop since the week of March 6, 2009. And the S&P 500 slid -7.2%…its worst week since November 2008.

For every one stock that rose on the NYSE, three declined.

And last Thursday was the ninth worst day ever for the Dow, in terms of points (with a loss of over 500 points).

But more importantly, last week’s decline technically put the market in correction territory (which is defined as a 10% decline from a previous closing high), with the S&P 500 falling better than 10% below its April 29th high.

That said, last week really wasn’t that bad.

A 10% correction is not an uncommon thing (historically we see such a correction once a year)…and in 2010 we experienced a -18% correction between April and July.

And last Thursday’s drop in the S&P 500 is something we’ve seen numerous times over the past few years:

And to put things in perspective: the Dow dropped -4.3% last Thursday…that pales in comparison to “Black Monday” in October 1987…when the index plummeted -23%.

The important thing to remember is that corrections present opportunities as valuations look more attractive. And while the market is oversold at this point, it may not have bottomed just yet, so now is the time to write a shopping list and be ready to buy when the trend reverses.

The bottom line: the other important thing to remember is that knee-jerk reactions to short-term market movements can lead to trouble. And most important of all: last week was a reminder that a risk management strategy is a good thing to have…before you need it.


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