S&P 500: Why I Used the 9% Correction to Buy More
This article was created with the help of artificial intelligence.
Key Takeaways
- The S&P 500 lost nearly nine percent over the past few weeks due to the over one-month Iran conflict and its stronger-than-expected impact on financial markets.
- According to Invesco data, markets recover from declines between five and ten percent within an average of three months.
- The S&P 500's price-to-earnings ratio currently stands at 19.9, trading slightly above the ten-year average of 18.9, indicating no fundamental undervaluation.
- Panic selling during market corrections causes investors to realize their paper losses and miss the subsequent recovery.
- For German-speaking investors with USD holdings, a weaker US dollar has an additional impact, while corrections simultaneously offer opportunities to buy at lower valuations.
The S&P 500 has lost nearly nine percent over the past few weeks. The trigger was the Iran conflict, which has now lasted over a month and whose impact on financial markets has proven stronger than initially expected. While some investors are unsettled by the losses, others are using the correction strategically to add to their positions – supported by historical patterns and long-term valuation considerations.
Correction in Historical Context
A decline of around nine percent falls within the range of a classic market correction. By definition, this lies between five and ten percent below the most recent peak. According to data from Invesco, markets recover from such declines within an average of three months. When the index falls ten to twenty percent, the average recovery period extends to eight months.
The emphasis here is on "average." Historical outliers show significantly longer periods: After the October 1987 crash, when the S&P 500 plummeted to 230.30 points, it took until July 1989 – nearly two years – for the index to reach its pre-crisis level of 336.77 points again. The 2008 financial crisis required three to five years for a full recovery, depending on how you calculate it. Between 2000 and 2011, following the dot-com bubble burst and the financial crisis, the market experienced a period of stagnant overall returns.
Valuation Still Above Average
Despite the decline, the S&P 500's price-to-earnings ratio currently stands at 19.9 based on expected earnings for the coming twelve months. The ten-year average is 18.9. The index is thus still trading slightly above its historical average valuation – an indication that the correction has not yet created a fundamental undervaluation.
Panic Selling as a Classic Investor Mistake
A key risk in correction phases is premature selling. Investors who exit when prices fall not only realize their losses on paper but typically also miss the subsequent recovery. Particularly for long-term investment goals such as retirement planning, experts advise against fundamentally rethinking your risk tolerance during a market correction. Such strategic decisions should be made during calmer market phases.
Context for German-Speaking Investors
For private investors in German-speaking regions who are invested in the S&P 500 through ETFs or funds, this applies: the currency component plays an additional role. A weaker US dollar can amplify losses in dollars when converted to Swiss francs or euros. At the same time, corrections offer long-term oriented investors opportunities to add to positions at lower valuations – provided personal investment strategy and risk capacity permit.