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The Anatomy of a Market Correction

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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.

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Markets

Will Tesla Lose Its Spot in the Magnificent Seven?

We visualize the recent performance of the Magnificent Seven stocks, uncovering a clear divergence between the group’s top and bottom names.

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Will Tesla Lose Its Spot in the Magnificent Seven?

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

In this graphic, we visualize the year-to-date (YTD) performance of the “Magnificent Seven”, a leading group of U.S. tech stocks that gained prominence in 2023 as the replacement of FAANG stocks.

All figures are as of March 12, 2024, and are listed in the table below.

RankCompanyYTD Change (%)
1Nvidia90.8
2Meta44.3
3Amazon16.9
4Microsoft12
5Google0.2
6Apple-6.7
7Tesla-28.5

From these numbers, we can see a clear divergence in performance across the group.

Nvidia and Meta Lead

Nvidia is the main hero of this show, setting new all-time highs seemingly every week. The chipmaker is currently the world’s third most valuable company, with a valuation of around $2.2 trillion. This puts it very close to Apple, which is currently valued at $2.7 trillion.

The second best performer of the Magnificent Seven has been Meta, which recently re-entered the trillion dollar club after falling out of favor in 2022. The company saw a massive one-day gain of $197 billion on Feb 2, 2024.

Apple and Tesla in the Red

Tesla has lost over a quarter of its value YTD as EV hype continues to fizzle out. Other pure play EV stocks like Rivian and Lucid are also down significantly in 2024.

Meanwhile, Apple shares have struggled due to weakening demand for its products in China, as well as the company’s lack of progress in the artificial intelligence (AI) space.

Investors may have also been disappointed to hear that Apple’s electric car project, which started a decade ago, has been scrapped.

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