By now you’ve probably read all the headlines; “Wall Street tumbles on trade war fears; tech financial weigh.” “Dow drops more than 400 points into correction, posts worst week since January 2016”. “NASDAQ 100 Plunges 7.3% in a week, most since August 2015”. It was a nasty week for the indices, the S&P500 lost -5.89%, and it’s down -9.60% since the 1/26 peak, the Dow Jones lost -5.61% this week, and it’s down -11.19% since January 26. If you guys don’t remember, January 2016 and especially 2015 were both nasty times as you can see below.

Corrections happen, they happen consistently, they never feel good, especially now that they are so hyped up by the media and social media. Bearish articles and negative news just means more hits and eyeballs for them so be prepared for more of the world is coming to an end commentary.  The flow of information, the hyperbole media and the easy access to your brokerage account also play a big part in making something that is natural into something bigger than it is. And believe me, it all plays a significant role, just take a look at the ETF outflows when the market corrects a little, all the so-called “passive money” turns into scared money. After seeing the market go straight up with no volatility for 2-years, many investors thought going passive was like owning a CD with a lot more upside.

When it comes to corrections, every year it’s a different story, different narrative, but in the end, so far they’ve turned out more like opportunities than the end of the world. Here’s an old sheet that was given to me when I first started in the business in 1997 about the biggest worries in the market every year;

Can things turn ugly? Can all the market fears of your favorite bearish blogger come to fruition? Sure, but here are some stats that you should keep in mind;

  • Years 1950-2015, 65 years
  • How many 5% corrections from All-Time Highs -61, happens all the time.
  • How many 10% corrections from All-Time Highs -20 + 1 the ongoing one, standard.
  • How many 20% corrections from All-Time Highs -9, they happen.
  • How many 30% corrections from All-Time Highs -5, cleansing.
  • How many 40% corrections from All-Time Highs -2, but yet this is what everyone fears when we are down 10%.
  • How many 50% corrections from All-Time Highs -1.  Just 1, don’t believe the fear hype, stay grounded. Source @PastStat

The key is to know what you own and why you own it. A trade should continue to be a trade regardless if it’s down; you need to cut it and don’t let it turn into an investment just because its gone against you. If you own the indices for the long term, then they should continue to be a long-term holding. It’s a lot easier to hold on to the indices than to individual stocks, the market tends to move higher over time, many individual stocks come and go, past leaders are usually are tomorrows leaders after a while.

And volatility, the market went 404 days without a 5% correction, countless days without a 1% correction and so far this year the opposite has been the norm. V-rallies have also been the norm; I don’t think many are ready of the opposite, a drawn out correction that last months like the Nasdaq 100 in 2002, seven nasty months of down action.

Or S&P500 Bear Market that started in late 2000 that lasted a couple of years.

A downtrend that last several months is and should be the biggest fear for many. It will test everyone’s mettle, all that passive money that went in could quickly turn to exodus money for months and months when the investors who thought they were in for a smooth up ride realize that it is not that easy.

Prepare yourself for any outcome that might come your way; a V-rally, a drawn out correction, sideways action for many months, continued volatility, etc.

I’m opening my managed assets program if you have an interest or need a second opinion feel free to REACH OUT.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at or 646-480-7463. 

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