Market Correction vs. Bear Market
- October 2018 was a spooky month. The S&P 500 Index once again entered correction territory as it declined -10% from its peak during the summer. The continued pattern of declines again raises the question: Is this the beginning of a bear market? Of course, not all corrections turn into bear markets. Data from the Schwab Center for Financial Research shows that there have been 22 market corrections since 1974; only four of them, occurring in 1980, 1987, 2000 and 2007, eventually ended up as bear markets.
- No bull market lasts forever, but bull markets have historically lasted much longer than bear markets. Since 1926, the average bull market for the S&P 500 Index has lasted 9.1 years with an average cumulative total return of 480%, while the average S&P 500 bear market period lasted only 1.4 years with an average cumulative loss of -41%.
- Economic conditions remain strong in the U.S. As such, investors should take advantage of the strong economy to prepare for the inevitable bad economy – whenever it occurs.