Some U.S. stock indexes cross 10% ‘correction’ mark

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The “correction” is here.

Wall Street’s sell-off over the last eight sessions has pushed several major U.S. stock market indexes down more than 10% from their spring highs.

That’s the usual threshold for saying stocks have entered a correction in a bull market, meaning a significant enough pullback to get people worried.

If you were confident that the market’s decline would end somewhere between a 10% and 20% drop from the recent highs, a correction would be an invitation to begin bargain-hunting.

That was the right strategy in the spring and early-summer of 2010, when major indexes fell beween 15% and 20.5% as the U.S. economy slowed and Europe’s debt woes worsened. (Sound familiar?)

The Russell 2,000 small-stock index sank 20.5% from late-April to July 2010. It’s up 30% from its low reached July 6, 2010.

This time around, with Tuesday’s 3.3% drop, the Russell index (charted at left) is down 11.4% from its spring high.

Other indexes in corrections now include the Standard & Poor’s 400 index of mid-size stocks, down 10.5%; the Dow transportation index, down 12%; and the S&P 600 small-stock index, down a hair more than 10%.

Blue-chip indexes still haven’t crossed the 10%-loss threshold in the current pullback. The S&P 500 index, which tumbled 2.6% on Tuesday, is down 8% from its spring high. It fell as much as 16% in its decline a year ago.

The Dow industrials are off 7.4% from this year’s high. The Dow lost 13.6% in the year-earlier slide.

That’s not to say the decline this time has to equal last year’s drop -- or that it won’t be much worse.

The problem with calling a market decline a correction is that it’s only evident after the fact that it wasn’t the start of a new bear market, meaning a sustained drop of more than 20%.

Every bear market, after all, begins with a correction.

-- Tom Petruno