Recent slide could cause more pain

With the stock market as wobbly and erratic as it has been since early February, all this talk about a so-called price “correction” can cause nervousness and confusion.

A correction is a rather mechanical-sounding term to describe a major stock market index such as the Standard & Poor’s 500 falling 10 percent or more from a prior closing high. The recent slump on Wall Street has pushed the large-company stock gauge down by more than 10 percent a few times in recent days, but not yet on a closing basis.

Tuesday, after briefly dipping into correction territory but closing 1.6 percent higher, the benchmark index finished the day down 8.5 percent from its Sept. 20 high. So what should investors prepare for if an “official” correction eventually strikes?

In the 22 corrections since World War II the average price drop for the S&P 500 has been 13.8 percent, according to data from CFRA, a Wall Street research firm. They normally last around five months.

The takeaway: The recent slide could cause more pain.

Since a correction is a drop between

10 and 19.99 percent, there’s a chance we’re only about halfway through this recent scare. The market fell more than

19 percent in 2011, 1998 and the 1976-78 period, CFRA data show.

But even “garden variety” corrections such as the 10.2 percent drop in February can cause fear levels to spike. The good news? Not every correction morphs into a more feared bear market, or 20 percent-plus drop. The average bear since 1929 has sliced nearly 40 percent off the S&P 500.