The stock market continued its sell-off Monday, however the “crash” you’ll have heard about hasn’t actually happened.
The Dow was down -2.74% in the primary hour and a half of trading, and the S&P 500 and the tech-heavy Nasdaq Composite each fell greater than -3%. This has compounded fears of a full-fledged stock market crash, with the most important indices down about -2%, -7% and -12%, respectively, over the past month.
The effect has trickled into the choice asset class, too. Gold and bitcoin prices are fell greater than 1% and 5%, respectively, on Monday.
Because the panic-selling ensues, Downdetector, a provider of network insights and connectivity intelligence, reported that several brokerages’ online platforms were down, including Charles Schwab, Fidelity, Vanguard, TD Ameritrade, E-Trade, Interactive Brokers and Robinhood.
Clearly, investors are concerned. But whether or not they needs to be anxious and even paying close attention is a matter of debate. Here’s some historical context that may provide insights as to what is going on and what investors can expect.
Stock market pullback vs. correction vs. crash
To date, 2024 has seen two market downturns. The primary, starting on April 11 and ending April 19, saw the S&P 500 fall by -4.46%. In the second, happening currently, the index has lost roughly -8% from July 16 to August 5. And while #stockmarketcrash is trending on social media, the hashtag is not only inaccurate, it’s fueling unwarranted speculation that might contribute to less experienced investors to panic sell.
Phrasing is significant, and investors should understand the differences between a pullback, correction and crash:
- Stock market pullback: losses of 5% to 10%, often accompanied by the term “dip”
- Stock market correction: losses of 10% to twenty%, but not enough to shift from a bull market to bear market
- Stock market crash: losses greater than 20%, when a bull market gives technique to a bear market
By those definitions, the April 2024 sell-off didn’t even classify as a pullback, let a lone a correction. Within the July and August sell-off, the S&P 500 — the benchmark widely used interchangeably to explain the general market — continues to be throughout the parameters of a pullback somewhat than a correction and definitely not near a stock market crash.
But as demonstrated by the variety of brokerages whose platforms crashed on August 5, panic appears to be contagious. Framing this current market environment inside historical context can, hopefully, reassure unnerved investors.
Why is the stock market falling?
A substantial amount of the recent sell-off will be attributable to investors locking in gains. In other words, stocks are falling now partly since the market has been so strong in 2024.
The S&P 500 stays up around 9.5% for the 12 months, with the Nasdaq Composite up nearly 10%. Those gains are more pronounced since last October, with the aforementioned indices having gained 26% and 29%, respectively.
Lingering macroeconomic concerns can also be an element. “Globally, markets are experiencing quite the sell-off today following the U.S. jobs market report in addition to the unwinding of the Japanese carry trade,” Deni Koenhemsi, head of economic evaluation at Morning Seek the advice of, said in a press release sent to Money.
July’s weak jobs report showed slower-than-expected payroll growth and an uptick in unemployment. Meanwhile, the Federal Reserve’s anticipated rate cut may very well be contingent on inflation further cooling — something that shouldn’t be guaranteed between now and the FOMC’s next meeting September 17 to September 18.
Historical context for stock market crashes
The last time the stock market saw a pullback was October 2023 when the benchmark index dropped by nearly 6%. That event lasted 10 market days; when it ended, the S&P 500 went on to achieve 26% before April 2024’s sell-off. After April’s event, the index posted a 14% gain before the present pullback began.
In actual fact, pullbacks during bull markets occur way more often than many retail investors realize. Pullbacks normally occur three to 4 times a 12 months and are considered healthy for the market. Additionally they present buying opportunities for investors, as stocks sell at a reduction.
The identical goes for market corrections, which entail larger drops within the benchmark indices. The outcomes of corrections also should instill confidence for patient investors who’re cognizant that the market never goes up in a straight line.
“Just like other sell-offs, this environment will present opportunities to some. Unless there are additional data points on U.S. inflation, spending or jobs that come below expectations, we expect this sell-off to not last long,” said Koenhemsi.
Based on investment bank Charles Schwab, “Since 1974, the S&P 500 has risen a median of greater than 8% one month after a market correction bottom and greater than 24% one 12 months later.”
Over the past 20 years, there have been 10 corrections, during which “stocks rose in most years, with positive returns in all but three years and a median gain of roughly 7%,” per the Charles Schwab report.
Visualizing losses during market fluctuations typically doesn’t instill confidence, and financial media — well aware of this — often relies on fear-mongering to extend engagement and rankings. As a substitute, investors can turn to the wisdom of revered minds like Warren Buffett, who has repeatedly said that “the stock market is the one place when the items go on sale, people run out of the shop.”
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