The NASDAQ and Dow Jones Industrial Average both entered correction territory (a 10% or greater decline from the previous all-time high) recently. The S&P 500, the broader gauge of the market, is not yet down 10% from his all-time high earlier this year but is getting close.
It is important to note that a 10% decline in stock values is called a correction because it is quite common for stock prices to pull back by 10% or more as a part of the normal volatility of the stock markets. A bear market, which occurs when the stock market declines 20% from its high, is considered the point where the market decline is significant.
This puts the stock market at a key inflection point. The moves from here will likely determine if the market selloff will go down in history as a normal correction or if it will morph into a bear market, the point at which the stock market is starting to price in an economic recession.
In summary, it is too early to take defensive action to protect portfolio value, but that point may not be too far away should the market continue to grind lower. In such a period of uncertainty it is important to stick to a defined risk manage-ment plan rather than trying to guess the future path for stocks.