Investors, growth investors especially, have experienced a lot of pain this past month following the NASDAQ Composite’s downward spiral to a full-blown correction. So, in today’s Market360 article, I’d like to take some time to talk about corrections and why you shouldn’t panic.

So, what exactly is a correction? Simply put, a market correction happens when the value of a stock, bond or index falls more than 10% from its most recent high. This differs from a crash, which is a sharp double-digit drop in prices in a single day or week. A correction essentially signals that investors want out of the market.

But the fact of the matter is a correction is not a rare occurrence; it’s actually quite common. On average, the S&P 500 experiences a correction once every year and a half, though it has been happening a lot more frequently in the past few years. This is the fourth correction for the NASDAQ since the coronavirus pandemic rocked the market in March 2020.

Last week marked the NASDAQ’s worst week since the start of the pandemic. The tech-heavy index confirmed a correction on Wednesday when it closed down 10.7% from its November 19 record high.

Now, if we back up a bit, the NASDAQ has seen four decisive lows since Thanksgiving. And the lows keep getting a bit lower each time, though selling comes on relatively light volume. But here’s where it gets interesting: The NASDAQ has exhibited this behavior 20 times since the 1970s. Typically, it has been a signal of strength in the coming months. On average, the NASDAQ tends to bounce back after a four-day bout of declines greater than 1%.

In fact, the folks at Bespoke report that the NASDAQ has risen an average of 1.78% in the week, 4.28% in the month and 9.62% in the next three months following a correction. The NASDAQ tends to rebound strongly. In fact, in the nine instances since 2008 economic crisis, the index has climbed higher in the following six and twelve months. It can also yield better-than-average gains after being grossly oversold.

In other words, the recent correction actually bodes well for future strength, as the NASDAQ is now more oversold than it was in March 2020. So, I’m not very concerned.

Now, before we dive into how you should navigate a correction, let’s first take a look at what started it. Investors have been spooked by the rising interest rate environment. You may recall that as the 10-year Treasury yield has trekked higher recently, the NASDAQ has marched steadily lower, almost in tandem.

When the NASDAQ cracked 10% last Wednesday, the 10-year Treasury yield had breached a new two-year high of 1.87%. I should note that the 10-year Treasury yield has moderated a bit, which is a good sign. The financial media only adds fuel to the fire, stating that a rising interest rate environment, due to the Federal Reserve hiking key interest rates, will hurt growth stocks and benefit value stocks. If you don’t believe me, take a look at a few recent headlines…

• Fortune: After years of struggles, value stocks are expected to outperform. Here’s how to profit.
• MarketWatch: Four reasons why value stocks are poised to outperform growth in 2022 — and 14 stocks to consider.
• CNBC: Value investing could be the winning strategy this year as interest rates rise and tech wobbles.

But here’s the truth: The Federal Reserve tapering its quantitative easing program and raising key short-term interest rates has virtually nothing to do with growth stocks. The Fed’s actions will impact cyclical stocks and financial stocks like banks. In fact, when the Fed raises short-term interest rates in March, if bond yields do not rise the same amount, then the banks’ operating margins can get “squeezed” as the yield curve tightens. If their operating margins shrink, so does their profitability.

Growth stocks, on the other hand, are largely immune to interest rates. The fact of the matter is investors are being misinformed by the financial media that have a vested interest in scaring investors to boost their ratings. In other words, rising rates is the financial media’s new boogeyman.

So, how exactly do we navigate this market correction?

Think Before You React

First things first: Don’t panic. The last thing you want to do is sell into weakness. In fact, if you’re a more aggressive investor, I recommend taking advantage of the weakness to scoop up fundamentally superior stocks at a discount. If you’re a more conservative investor, you might want to wait for the market to make a more decisive bottom.

And secondly, pay careful attention to the stocks you do invest in. I personally focus on companies that are characterized by strong fundamentals, as represented by positive forecasted earnings and sales growth. They must also have strong institutional buying pressure, which I call my Quantitative Grade in my Portfolio Grader.

The Quantitative Grade is based on a stock’s Alpha (return uncorrelated to the overall stock market) divided by its Standard Deviation (volatility) in the past 52 weeks. In other words, the Quantitative Grade measures the level of buying pressure in a stock. The more buying pressure, the higher the Quantitative Grade — and the more momentum a stock has to rise.

I should add that the Quantitative Grade identifies Alphas with less volatility, which is why my Growth Investor stocks are usually less manic than the overall market. They also bounce back faster once the broader market settles.

A big catalyst for my Growth Investor stocks is earnings season, and I look for the fourth-quarter earnings season to really light a fire under them. As I will discuss in today’s Growth Investor February Monthly Issue, my average Growth Investor stock is characterized by 33.4% annual sales growth and 45.6% annual sales growth. The S&P is trading at 22 times forecasted price-earnings (PE) ratio, while my average Growth Investor stock is trading at a median forecasted 2022 PE of 20.3.  In other words, thanks to the recent correction, my average Growth Investor stock is no longer trading at a premium forecasted PE ratio.

I am excited to announce that I will be adding three new fundamentally superior stocks in the Growth Investor February Monthly Issue. One is expected to be a huge benefactor of the accelerating electric vehicle (EV) trend, and the other two are excellent dividend growth stocks. They are AA-rated, which means they earn an A-rating in Portfolio Grader and Dividend Grader . I’ll share all the details with you in today’s Growth Investor Monthly Issue. Simply sign up here to receive full access to my latest buys, sells and Top Stocks.

I also encourage you to give my Portfolio Grader and Dividend Grader a spin. These are handy investing tools to keep in your back pocket. Essentially, these will grade your stocks and tell you which stocks are buys or should be sold immediately. I’ll give you an example in tomorrow’s Market360 article with Microsoft Corporation (NASDAQ:MSFT), Tesla (NASDAQ:TSLA) and Apple (NASDAQ:AAPL), so stay tuned!

Sincerely,

Louis Navellier

P.S. There is a great divide opening up in America — and investing in my Growth Investor stocks will help get you on the right side of it. On one side is a new aristocracy that’s amassing more wealth more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.

On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.

What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.

Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.

It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.

It doesn’t matter if you have $500 in savings or $5 million. You can benefit from the information in this video.

It’s free to watch, and by doing so, I know you’ll be ahead of everyone else struggling to understand what is really going on.

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Microsoft Corporation (MSFT)

Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.