Bull Markets, Pullbacks And Corrections

After a stellar run-up this year, it looks like we are finally getting the long-awaited pullback.

And I, for one, couldn’t be happier. Why? Because the ‘fear’ of a pullback was keeping plenty of investors on the sidelines. And the sooner we can get this over with, the sooner we can get back to the bull market rally.

What’s important to know is that pullbacks and corrections are common. Every bull market has them.

In fact, stocks usually pull back about -5% roughly 3-4 times per year. (A pullback is defined as a decline between -5% and -9.99%.)

We actually saw one earlier this year in late February/early March when the Dow pulled back by -4.57%, and the S&P pulled back by -5.75%.

Stocks usually correct -10% on average about once a year. (A decline of -10% to -19.99% is called a correction.) That’s what the Nasdaq did back then with a correction of -12.04%.

But these are the pauses that refresh before the next leg up. And from those March lows, the Dow then surged by more than 16%, the S&P by 22%, and the Nasdaq by 28%.

Now the markets are at it again.

From the recent highs, the Dow at its worst has pulled back by -5.66%, the S&P by -5.66% as well, and the Nasdaq by -7.30%.

After shaking the tree, it will be exciting to see how high the market can go this time.

While pullbacks and corrections are never fun when they’re happening, if you know these are commonplace moves, you can instead look at them as opportunities to buy rather than places to sell.