Stock market corrections

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria,” as renowned investor Sir John Templeton once said. Unlike Templeton, however, you do not need to be a Rhodes Scholar or the namesake of a philanthropic organization to know that markets are inherently volatile and prone to cycles of gains and losses.

Though past performance does not guarantee future results, markets have traditionally been cyclical. Some financial professionals viewed the performance of major market indices over the past year or so as the “euphoria” stage described by Templeton; in the 2017 calendar year, the Dow Jones Industrial Average (DJIA) increased in value by more than 25 percent.

In late January, however, investors were reminded of market volatility when stock valuations dropped significantly in a short amount of time. Though the specter of past recessions and depressions looms over these drops, let us examine what a “market correction” is and what it might mean to investors.

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