Don't Call it a Correction! The Nasdaq's Hurting, but the Dow Barely Noticed

These drops are so common you probably won't remember this one after a week.

Apr 11, 2014 at 12:11PM

Don't call it a correction just yet! Sure, the Dow Jones Industrial Average (DJINDICES:^DJI) is down -- slightly -- from its month-ago levels, and the formerly high-flying Nasdaq Composite (NASDAQINDEX:^IXIC) is down over 6% from mid-March.

^DJI Chart

^DJI data by YCharts.

But when we pull back the curtain and look at the indices' year-to-date performances, we find that things aren't all that bad. In fact, the S&P 500 (SNPINDEX:^GSPC) has barely moved from its Jan. 1 opening value, and the other major indices are each down less than 3%:

^DJI Chart

^DJI data by YCharts.

You can see a worse "correction" in late January and early February, when the Dow became the worst-performing major index, dropping all of 7% in a couple of weeks as the other two indices followed it to losses of roughly 5% each. If the Dow and the S&P 500 follow the Nasdaq into 5%-loss territory, it might happen a bit faster than usual, but it'll hardly be cause for alarm. After all, a 5% drop is so common that it typically fades into the background noise of market commentary within a week of ending.

According to Marquette Associates, a 5% to 10% drop has occurred in at least a third of all trading years since 1950, while only 8% of those years experienced no decline of at least 5%. All told, "corrections" that shaved anywhere from 5% to 20% off the S&P 500's value have happened in three out of every four years since 1950. On a longer timeline, 5% drops are pretty darn common -- from the start of the 20th century to the end of last year, the Dow experienced about three such declines every year, according to American Funds. The last 5% decline in the Dow before the one that hit this February took place last October, just half a year ago. Do you remember that? Probably not, since the "correction" is barely visible on a chart that begins at the start of that month:

^DJI Chart

^DJI data by YCharts.

At this stage, it's not even a correction in any index save the Nasdaq, and much commentary has rightly pointed out that it's the high-flying stocks with exorbitant valuations that have gotten the worst haircuts. The past month's worst S&P 500 stocks are nearly all traded on the Nasdaq: Netflix (NASDAQ:NFLX) and TripAdvisor (NASDAQ: TRIP) have led the dive, with each losing roughly a quarter of their value. Despite that, both still sport some of the highest multiples on the market, and their fellow biggest losers are generally members of that high-P/E club as well:


Past-Month Decline

Current P/E 







Gilead Sciences (NASDAQ: GILD)



Facebook (NASDAQ: FB)


100.8 (NASDAQ: AMZN)






Sources: Finviz and YCharts.

On the other hand, the largest stocks on the market have barely moved over the past month. Apple (NASDAQ:AAPL), with a $465 billion market cap and a 13 P/E, has declined by roughly 2.5% -- right in line with the decline in the S&P itself. ExxonMobil (NYSE: XOM) and Microsoft (NASDAQ: MSFT), the two Dow stocks with the largest market caps, have both gained about 3% in value over the past month. Neither sports a P/E above 15.

Is it a correction? Perhaps, if you're the sort who prefers to invest heavily in high-flying momentum stocks or in big bets on future opportunities. For value investors, it's still a relatively calm market -- and the recent turbulence of this correction that wasn't (at least it isn't yet, not with all three indices now working valiantly to return to positive territory after an ugly opening-bell drop) could be the right time to diversify into some more-affordable growth stocks.

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Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.

The Motley Fool recommends, Apple, Facebook, Gilead Sciences, Netflix, and TripAdvisor. The Motley Fool owns shares of, Apple, Facebook, Microsoft, and Netflix. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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