U.S. stock markets may not have stabilized yet

Recent data shows that the U.S. stock market is experiencing a correction. Over the past month, the Dow Jones, S&P 500, and Nasdaq Composite have dropped 6%, 7.8%, and 11.8%, respectively. As of March 20, both the S&P 500 and Nasdaq are officially in correction territory, having fallen at least 10% from their all-time highs. Despite these declines, none of the major indexes have dropped below their closing lows from March 13. This raises the question of whether the market correction is over or if it has just begun. To provide insight, analysts refer to a key forecasting tool known as the Shiller price-to-earnings (P/E) ratio. This ratio looks at average earnings over the past decade and is used to assess the market's value. Currently, the Shiller P/E is at 35.38, a significant drop from its peak of 38.89 in December. Historically, when the Shiller P/E ratio stays above 30 for two months, it has often led to substantial market declines. In past occurrences, the S&P 500, Dow, and Nasdaq have lost between 20% and 89% of their value. Market corrections are a normal part of investing. Since 1950, the S&P 500 has experienced 40 double-digit percentage corrections, averaging approximately every 1.88 years. These corrections can be unsettling, but historical data shows that bull markets tend to last much longer than bear markets. In fact, since the start of the Great Depression, bull markets have lasted an average of 1,011 days, whereas bear markets last about 286 days. A study of S&P 500 returns over the past century reveals that every 20-year period has yielded positive returns for investors. This indicates that corrections often provide valuable buying opportunities for those willing to hold their investments over the long term.