Photo by Spencer Platt/Getty Images

The S&P 500 fell into correction territory at close yesterday, dropping a little more than 10 percent from its high on January 26 (stocks are up today, so far).

As The New York Times points out, a correction doesn’t always point to doom: There have been 10 corrections over the past 20 years, two of which have presaged bear markets—a sustained drop of 20 percent or more—in 2000 and 2008.

Trying to pinpoint the exact reasons for the last week’s tumble is a fool’s errand. But the most likely culprit appears to be fear that central banks will increase interest rates in an effort to fend off inflation and ensure that fast-growing economies don’t overheat. Those fears were stoked Thursday when the Bank of England warned that it might raise interest rates faster than investors had expected.

Here’s a good overview of what’s been happening since 2008, from Yardeni Research:

Yesterday’s drop may seem dramatic because it’s been two years since the S&P fell into correction territory (as you can see in the graph above) and 2017 was such an unusually good year for growth. But the week’s events are not unexpected: Experts have been warning about a bear market for a while now, as the current bull is the second-longest on record. According to Peter Oppenheimer, Goldman Sachs’ Chief Global Equity Strategist, it takes four months, on average, to recover from a correction, and around two years to recover from a bear market slide.

As I wrote before, in uncertain times like these, it’s important to remember your long-term financial plan. The declines in the past week may prove to be just a hiccup, when compared to the gains of the past few years. However, if you’re really spooked, it may be a good time for you to take stock (pun not intended) of your risk tolerance. No one would ever recommend selling when stocks dip, but as Ron Lieber writes in The New York Times, “[y]ou may have to work more or work longer or take on a side hustle to meet your goals. If that doesn’t bother you, lower your stock holdings accordingly.” Just educate yourself on the gains you’re potentially missing out on.



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