Why A Big Stock Market Sell-Off Is No Reason To Panic

Is this the end of the bull market? Is this the beginning of the crash?

We can’t help but ask these questions when we see stocks take a tumble from their highs.

Currently, the S&P 500 is down 2.8% from highs set last week. The Nasdaq is down 6.9% from highs set last month.

If we look to history, things could get much worse before they get better. But this doesn’t mean we’re doomed for a crash.

Here’s an excerpt from Rich Barry’s NYSE MAC Desk Mid-Day Update:

In light of the fact that floor traders and the talking heads on the financial networks are sounding a bit “panicky” today about the recent sell-off in equities, we think that now is a good time for a little history lesson on “market corrections”. Corrections are a normal feature of the stock market, and they are healthy for the market. Since we haven’t experienced a correction since late 2012, market-watchers need to be reminded of their frequency. Since 1900, checkout these stats on how frequently corrections occur on average:

1.- 5% market corrections: 3x per year.

2.- 10% market corrections: Once per year.

3.- 20% market corrections: Once every 3.5 years.

Those are the rough numbers.

JP Morgan Funds’ David Kelly offers this chart of intra-year declines that every investor should pin to their walls.

Bottom line: Sell-offs happen. And sometimes they’re big. But they’re normal. And they’re certainly no reason to just bail out of the stock market.

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