With the global stocks suffer their biggest declines in years, investors would need a refresher on some of the conditions it is thrown.
Let’s start with “correction.”
A correction happens when a stock, bond, commodity or index falls 10 percent from a recent peak. In the beginning of trading Tuesday, the Dow Jones industrial average briefly fell 10 percent lower than its most recent record of 26,616.71, set on Jan. 26. However, most market watchers are waiting until the market closed for the day before the to declare that an index or other benchmark has officially entered a correction.
So far, the Dow, Standard & Poor’s 500 and the Nasdaq have not fallen enough to be in a fix.
Corrections during bull markets. The most recent one ending in February 2016, according to S&P Dow Jones Indices. That is an unusually long time for the market to go without.
A bull market is generally defined as an increase of 20 percent or more in a broad stock indexes such as the Standard & Poor’s 500. Experts date the current bull market until the beginning of March 2009. That is when the stocks started climbing again of their strongest declines of the financial crisis. The S&P 500 has more than tripled in that time.
A bear market happens when stocks decline over a longer period of time, with the same 20 percent threshold. The last bear market stretched from October 2007 to March 2009, after the housing bubble burst.
The sell-off in US stocks this week spread to the markets in Asia and Europe, the resurgence of the use of the term “contagion”, which was widely used during the European debt crisis early this decade.
When financial analysts talk about infection, they mean, as distortions of the market dissemination of an economy or region in order to influence others.
Some of the sudden drop of the US stock exchanges on Monday, was pinned in the area of algorithmic trading, that is when computers are programmed to give specific instructions to place trades. The computers can be the transactions faster and more frequently than human traders can. During a 15-minute stretch, the Dow plunged 850 points and then recovered almost all of it.