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Someone told me that the S&P index will get a "correction" downward. What does it mean exactly? What are the chances it will actually happen, and if it does, can we somehow know when it will happen?

  • It's a fool's errand to try to predict if the market will correct or the probability of that happening. But you can certainly react to a correction or bear market as it unfolds. – Bob Baerker Jan 8 at 23:52
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Someone told me that the S&P index will get a "correction" downward. What does it mean exactly?

Imagine there is an index in country x's stock market. people take notice when the index drops.

Pullbacks, Corrections, and Bear Markets:

When it comes to market downturns most of us in the analyst community group them into 3 distinct categories: Pullbacks, which are a downturn that is less than 10% from an all-time high. Corrections, which are a downturn that is more than 10% but less than 20% from an all-time high. And bear markets, which are a downturn that is 20% or more from an all-time high.

This is not something that is done by a government meddling in the market. This is something that happens because investors may be taking profits out of the market (pullback), or if the investors are worried about something (correction), or that many other financial and economic metrics are dropping (bear market).

What are the chances it will actually happen, and if it does, can we somehow know when it will happen?

Nobody knows when or if it will happen. They don't know which individual parts will be hurt most, and which parts will be hurt least. They don't know how long it will last. If an investor knew this with certainty they could modify their investments to take advantage. But nobody knows.

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What does it mean exactly?

https://www.investopedia.com/terms/c/correction.asp

In the world of investments, a correction is generally defined as a decline of 10% or greater in the price of a security from its most recent peak. Corrections can happen anywhere including individual stocks, the indexes that follow stocks or sectors, the commodities and currency markets, or any asset that trades on an exchange.

An asset, index, or market may fall into a correction either briefly or for sustained periods—days, weeks, months, or even longer. However, the average market correction is short-lived and lasts anywhere between three and four months.

As for when* it will happen... everybody wants to know that, but no one can **know the future, can that?

Many analysts look at what happened before past corrections in order to try to estimate when the next correction will happen, but they're all guesses. No public mathematical model can yet do anything other than say "a correction will happen soon" without being very specific on how soon soon is. Usually it's within the next year.

(This is similar to the same problem the US government had before 9/11: there were warnings that something would happen to US assets soon. But that's not very useful, because something and soon are soooooo... vague.)

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  • Why would a correction happen in the first place? It sounds like meddling with the market – Yonatan Nir Jan 7 at 8:07
  • @YonatanNir meddling? Hardly. If lots of people keep buying a stock, eventually the stock will get overvalued. "Everyone" will suddenly realize it, and sell off the overvalue asset until it's not overvalued anymore. Think of it as letting some air out of a balloon, so that it doesn't over-inflate and then pop. – RonJohn Jan 7 at 8:21
  • I admit I don't know the first thing about it, but that actually sounds even more like meddling.. if people want to buy something to the point the value increases so they could sell it after for a large profit, then why not? – Yonatan Nir Jan 7 at 8:25
  • @YonatanNir are you a native speaker of English? Because maybe your understanding of the word "meddling" (intrusive or unwarranted interference) seems flawed. Lots of people follow the crowd: they follow the crowd by buying when everyone else buys, and they sell when everyone else sells. That's not meddling; that's human nature. – RonJohn Jan 7 at 8:34
  • I'm not a native English speaker, but that definition seems about right here. I'm not saying that buying and selling is meddling... I'm saying that it seems like a correction in prices which was set by the actions of people in the free market is meddling (again, from a perspective of someone who has little knowledge about the stock market) – Yonatan Nir Jan 7 at 8:43

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