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S&P 500 correction: the medicine nobody wants to take

February 24, 2022
clock 2 MIN READ

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. Download the full commentary.

Important Information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only. There are risks involved with investing, including possible loss of principal. Diversification may not protect against market risk. Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company.

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