24/7 Wall St.

It was just in May that the stock market was hitting new high after new high. Now interest rates have risen handily and the woes from the international economic front have started turning south after initially stabilizing. The Federal Reserve has also for some reason lost its communicate well at all. Add all of this up, and now the stock market is approaching a 10% correction from its highs. Now ask yourself what Warren Buffett would do.

The S&P 500 Index peaked at 1,687.18 on May 22, 2013 would require the S&P 500 to fall to 1,518.46 for a 10% correction to take place. The lows so far on the S&P 500 in mid-Monday trading were down at 1,560.33 for a drop from the peak of about 7.5%. The DJIA is down almost 200 points (188) at 14,609.40 for a drop of 6% from its peak. The DJIA would actually have to drop down to about 13,988 for a true 10% correction to be here.

Keep in mind that stocks closed out 2012 at 13,104.14 on the DJIA and that the S&P 500 Index closed out 2012 at 1,426.19. The question that might need to be asked is whether or not a 10% correction will even matter in the grand scheme of things. The answer to that simply relies on whether the economic recovery continues or whether we dip back into another recession.

Will Warren Buffett be bullish if stocks sell off by 10%? He always has been by signaling that the right long-term plan is to be greedy when others are fearful and to be fearful when others are greedy.

The S&P 500 Index is the true stock market when compared to the DJIA, and a 10% correction there is worth more market coverage than a 10% DJIA correction. The index is market-cap based rather than weighted solely based upon the raw share prices of 30 industrial stocks. The S&P valuation is also of what are supposed to be the 500 biggest companies rather than just 30 of the largest industrial stocks.

Any time the market runs up, it seems to go farther than what the history books agree it should have gone too. The same is true of most sell-offs and corrections. So, will the market hit a 10% correction? It is so close now and the tape is bad enough that it is sure possible or even probable.