• On average, a correction in the U.S. stock market occurs every year or so and takes less than a year to recover.
  • Despite the concern that corrections tend to cause, they are necessary for the health of the overall market.

This week, the S&P 500 Index fell into correction territory—that is, it declined by 10% or more from its most-recent high. The drop was triggered by a variety of factors, including the impending balance sheet reduction and eventual interest-­rate hikes from the Federal Reserve, persistent inflation and the escalation of conflict between Russia and Ukraine.

The decline comes just short of the two-­year anniversary of the previous correction, which took place on February 27, 2020. That downturn was driven by a sharp rise in fears about COVID-19.

While nobody likes to see markets fall, Exhibit 1 (download the full commentary to view exhibits) provides some perspective: on average, U.S. stock market corrections occur about once every year.

While it is understandable that investors may be alarmed when the market falls, it is important to recognize three important facts about stock-market corrections: they are quite common; they aren’t typically tied to an economic crisis; and they are actually necessary for the health of the overall market.

A more detailed look back provides additional perspective.

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