There have been 26 corrections on the ASX since World War Two.
These have come at times where the stock market has taken a dive as a result of external influences, only to steadily build itself back up again.
Coronavirus is proving to be one of those external pressures, causing global panic which has impacted the economy in a variety of ways.
At present, general consensus indicates that common sense has been taken over by fear, and the market is adjusting accordingly. The Australian share index has fallen over 10% since February, and even traditionally stable commodities like gold and Bitcoin are steadily dropping in value.
People are concerned, but for the moment they really don’t need to be.
While a 10% drop in just over a month sounds bad on the surface, it came after a peak of 6.2% growth, meaning the market really only finds itself behind just over 3% on the year – a marker which brings it in line with where things sat in June 2019.
This is all following a year where the stock market rose by 18.4% – the strongest performance in a decade.
There is a roadmap in place, built from past instances like this one, which gives us a general guide on how things will play out. Of the 26 times the market has been forced to correct in the last 75 years, it has done so in an average period of four months.
If the market were to fall a further 10%, hitting ‘bear market’ territory, then the correction takes much longer. However, history shows there is always a correction.
There is no need to lose confidence in the market just yet.