On the heels of the worst daily performance since Nov. 7, stocks rebounded today, with the S&P 500 (SNPINDEX:^GSPC) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES:^DJI) gaining 1.4% and 1.1%, respectively.

As the market found its nerve, the VIX Index (VOLATILITYINDICES:^VIX), Wall Street's fear gauge, which had shot up 43% yesterday, fell back nearly 20%. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

Is a correction coming?
The poll on the front page of Yahoo! Finance today plumbed the market's psychology, asking: "Do you think a correction on stocks is on the horizon?" Here are the results as of roughly 6:25 p.m. EDT, with nearly 75,000 respondents:

  • Yes, it's coming: 54%
  • No, we have more room to run: 20%
  • I'm not convinced either way: 26%

A majority of investors expect a correction! I think there is good reason to believe this result is heavily influenced by yesterday's 2.3% decline in the S&P 500, due to a psychological effect that goes by the name of "recency effect" or "recency bias," according to which people put a heavier weight on the most recently available data -- in this case, a sharp one-day decline in stock prices.

It would have been interesting to see the results of the same poll as of last Friday -- my guess is that the number of people expecting a correction would have been substantially lower than 50%. If you accept that hypothesis, the question then becomes whether Monday's events require a fundamental reappraisal of that risk -- I don't think they do. Either way, the table below shows the average performance of the S&P 500 over the three-month, six-month, and one-year periods following a one-day decline greater than yesterday's (of which there have been 235 occurrences since Jan. 1950):


63 Trading Days (~ 3 Months)

126 Trading Days (~ 6 Months)

252 Trading Days (~12 Months)

Average % Return, S&P 500




Bottom Quintile Cutoff




Author's calculations, based on data from Yahoo! Finance.

I'm not expecting a correction, although, naturally, I can't rule it out. Equities are volatile and they've had a tremendous run. Even if they do correct, investors who are invested in high-quality franchises at reasonable valuations have time on their side and need not be concerned.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned, and neither does The Motley Fool. You can follow Alex on LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.