S&P index correction

Question

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?

Answer 1

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.

Answer 2

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.)