Q&A: What it means that stocks are in a ‘correction’
NEW YORK (AP) — The stock market’s steep decline the past week has pushed the Dow Jones industrial average and the Standard & Poor’s 500 index into what is known as “correction” territory.
Here are some common questions asked about corrections and what they mean to average investors:
WHAT IS A STOCK MARKET CORRECTION?
A “correction” is a Wall Street term for when an index like the Dow industrials or the Nasdaq — or an individual stock — falls 10 percent from its most-recent high. The Dow fell 1,032.89 points Thursday to 23,860.46, which is 10.4 percent below its record close of 26,616.71 set on January 26. A correction is not the same as a bear market, which is defined as when a stock index or individual stock falls 20 percent from its most-recent peak.
IS THE ENTIRE STOCK MARKET IN A CORRECTION?
Two of the U.S. stock market’s three major indexes are in correction territory now. The S&P 500, the index that investors pay the most attention to, is in a correction, down 10.2 percent from its recent high. The Nasdaq composite is close, but not all the way there, down 9.7 percent from its record.
WHEN WAS THE LAST TIME WE HAD A CORRECTION?
The last correction for the S&P 500 ended in February 2016, when worries about a sharp slowdown in China’s economic growth rattled markets around the world.
ARE CORRECTIONS A NORMAL THING FOR THE MARKET?
Even the most bullish of market strategists will say a correction is ultimately healthy for a market because it removes some of the froth and speculation.