Stocks
The Anatomy of a Market Correction
The Anatomy of a Market Correction
Markets are rarely a straight march forward.
Even though the end destination is usually a bullish one, markets often take a far more scenic route to get there. Sometimes that means going off the beaten path, and other times it may mean taking a step directly backwards to get reoriented.
In investing parlance, the latter situation can be described as a market correction: a short-term duration market move between -10% and -20%.
These are significant declines that can be a “gut check” for investors, especially for those who haven’t experienced many of them in their investing careers.
Breaking Down a Market Correction
Today’s infographic comes to us from Fisher Investments, and it describes the anatomy of market corrections, while also visualizing much of the data around these common events.
The average market correction looks something like this:
- Frequency:
On average, there is one market correction that occurs each year - Length:
The average correction lasts for 71.6 days - Depth:
The average correction involves a 15.6% decline - Impact:
A correction often results in increases in uncertainty, volatility, and media alarmism.
In the current bull market, there have already been eight corrections. The most noteworthy of these went from May 21, 2015 until February 11, 2016 and resulted in a -18.9% fall in stock prices.
Bull or Bear?
One of the biggest challenges created by market corrections is that they are also far from straightforward.
Corrections can be over in two weeks, or it can take almost a year for a correction to eventually revert back to a bull market. To complicate matters, there is also a chance that a correction may turn into a bear market – a fundamentally-driven and sustained decline where the market dips 20% or more.
While every correction is different, data can also help paint a clearer picture: between 1980-2016 there were 36 corrections in the U.S. market, and only five of them (about 14%) resulted in longer, sustained bear markets.
The flipside of this, however, means that 86% of the time, a correction ends up just being a blip on the radar of an otherwise intact bull market.
In other words, the vast majority of corrections end up providing an opportunity for smart investors to take advantage of lower prices before a bull market continues its climb.
Economy
Animated Chart: The S&P 500 in 2023 So Far
Track the S&P 500’s performance in 2023, including all 500 companies, and the sectors they belong to, in this animated video.
Creator Program
The S&P 500’s Performance in 2023 Q1
With one quarter of 2023 in the books, how has the S&P 500 performed so far?
The index had a tumultuous 2022, ending the year down 18%, its worst performance since 2008. But so far, despite dealing with tight monetary conditions and an unexpected banking crisis, the S&P 500 has promptly started to rebound.
The above animation from Jan Varsava shows the stock performance of each company on the S&P 500, categorized by sector.
Biggest Gainers on the S&P 500
The S&P 500 increased 7.5% during the first quarter of 2023. Though it was led by a few big outperformers, more than half of the stocks on the index closed above their end-of-December prices.
Here are the top 30 biggest gainers on the index from January 1 to March 31, 2023.
| Rank | Company | 3-Month Return |
|---|---|---|
| 1 | Nvidia | 90.1% |
| 2 | Meta (Facebook) | 76.1% |
| 3 | Tesla | 68.4% |
| 4 | Warner Bros. Discovery | 59.3% |
| 5 | Align Technology | 58.4% |
| 6 | AMD | 51.3% |
| 7 | Salesforce | 50.7% |
| 8 | West Pharmaceuticals | 47.3% |
| 9 | General Electric | 46.3% |
| 10 | Catalent | 46.0% |
| 11 | First Solar | 45.2% |
| 12 | Monolithic Power Systems | 41.8% |
| 13 | MarketAxess Holdings | 40.6% |
| 14 | GE Healthcare Tech | 40.5% |
| 15 | Arista Networks | 38.3% |
| 16 | ANSYS Inc. | 37.8% |
| 17 | Fortinet Inc. | 35.9% |
| 18 | Wynn Resorts | 35.7% |
| 19 | Paramount Global | 33.8% |
| 20 | FedEx Corp | 32.7% |
| 21 | MGM Resorts | 32.5% |
| 22 | Royal Caribbean Group | 32.1% |
| 23 | ON Semiconductor Corp | 32.0% |
| 24 | Booking Holdings | 31.6% |
| 25 | Cadence Design Systems | 30.8% |
| 26 | Skyworks Solutions | 30.2% |
| 27 | Pulte Group | 28.4% |
| 28 | Seagate Technology | 27.1% |
| 29 | Apple | 27.1% |
| 30 | Lam Research | 26.6% |
Nvidia shares gained the most of all the companies on the S&P 500 in Q1 2023, posting a staggering 90% return over three months.
As the world’s largest chipmaker by market cap, Nvidia gained from both strong earnings and semiconductor industry performance. It also benefited from the rising prevalence of artificial intelligence (AI) through software like ChatGPT.
Meanwhile, other tech giants Apple and Microsoft gained 27% and 21% respectively over the same time period.
Tech Leads Returns by Sector
The technology sector as a whole was the best performing sectoral index thanks to these big moves, up 21.7% at the end of March.
| Sector | 3-Month Return |
|---|---|
| Technology | 21.65% |
| Consumer Services | 21.27% |
| Consumer Discretionary | 16.60% |
| Materials | 4.29% |
| Industrials | 3.47% |
| Real Estate | 1.95% |
| Consumer Staples | 0.72% |
| Utilities | -3.24% |
| Health Care | -4.31% |
| Energy | -4.37% |
| Financials | -5.56% |
| S&P 500 | 7.5% |
Shares of other tech-adjacent companies like Meta (formerly Facebook) and Tesla—listed on the S&P 500 under the categories of communication services and consumer discretionary—also had a strong start to the year and lifted their respective sectors.
Meta in particular is up 76% in Q1 2023, continuing its rebound after falling to an eight-year low in November 2022 on the back of better-than-expected fourth quarter results and share buybacks.
Biggest Losers on the S&P 500
On the other side of the S&P 500, the financial sector was rocked by sudden collapses.
Signature Bank and Silicon Valley Financial Group shares lost the most ground in the first quarter, after both banks collapsed, shedding nearly all of their value in a matter of 30 days.
In fact, seven of the 10 worst performers on the index to start 2023 are banks or financial companies. The visualization shows the ripple effect on the market after the collapse of regional banks in March, and the ensuing rout driving the entire sector down 5.6% year-to-date.
Here are the top 30 biggest losers on the index from January 1 to March 31, 2023.
| Rank | Company | 3-Month Return |
|---|---|---|
| 1 | Signature Bank | -99.8% |
| 2 | Silicon Valley Financial Group | -99.6% |
| 3 | First Republic Bank | -88.5% |
| 4 | Lumen Technologies | -49.2% |
| 5 | Zions Bancorporation | -38.6% |
| 6 | Charles Schwab Corp | -36.9% |
| 7 | Comerica Incorporated | -33.9% |
| 8 | DISH Network | -33.5% |
| 9 | KeyCorp | -27.3% |
| 10 | Lincoln National Corp | -25.8% |
| 11 | Centene Corporation | -22.9% |
| 12 | Cigna Group | -22.5% |
| 13 | APA Corporation | -22.3% |
| 14 | Citizens Financial Group | -22.1% |
| 15 | Enphase Energy Inc. | -20.6% |
| 16 | Baxter International Inc. | -19.9% |
| 17 | Truist Financial Corporation | -19.9% |
| 18 | American International Group | -19.8% |
| 19 | CVS Health Corporation | -19.7% |
| 20 | Pfizer | -19.6% |
| 21 | Gen Digital | -19.5% |
| 22 | MetLife | -19.4% |
| 23 | Huntington Bancshares | -19.4% |
| 24 | Fidelity National | -19.3% |
| 25 | Halliburton Company | -19.2% |
| 26 | Molina Healthcare | -19.0% |
| 27 | PNC Financial Services | -18.8% |
| 28 | Boston Properties | -18.4% |
| 29 | Fifth Third Bancorp | -17.8% |
| 30 | Allstate Corporation | -17.7% |
Despite the tight monetary landscape, traditionally defensive sectors like energy, consumer staples, and healthcare also underperformed the broader index. This is a reversal from market trends seen in 2022.
Investment Trends to Watch for in 2023
Experts predict a pause in U.S. interest rate hikes “sometime in 2023” but it’s unclear when (or at what level) the pause will take place given persistent inflation in the economy.
However, if interest rates level off in 2023, it could be a key momentum maker for the S&P 500. As Barron’s points out, the index tends to rise after hikes are paused.
Meanwhile, the current tumult in the financial sector is fanning the flames of recessionary fears. How effectively regulators manage the crisis might be the story of the year.
Finally, as we have seen in 2023 so far, investor interest in AI has sent tech stocks soaring. Is this a quick fad, or an overarching trend for the year?
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