Slideshow: Six things to understand about stock market turmoil

Kash Pashootan, CEO at First Avenue Investment Counsel Inc., says it’s a fool’s game to try and explain why a correction took place, but points out there is no arguing that some pullback was overdue after nine years of positive returns for U.S. markets. Corrections are seen as entirely normal during bull markets, and even helpful in removing speculative froth and allowing new investors to buy into the market at lower prices. The last time the market had a correction was two years ago, which is seen as an uncommonly long time.

It certainly wasn’t because of bad job numbers or other fundamentals, said Benjamin Reitzes at BMO Capital Markets in a note, pointing out that Monday’s only data point showed that the U.S. non-manufacturing sector started the year in robust health. Many point to the strength of the U.S. economy, including Friday’s positive job numbers that showed wages growing at the fastest rate in eight years, as a potential cause. The positive indicators have increased speculation that the U.S. Federal Reserve Board may raise interest rates faster than expected to cool inflation.

Higher interest rates would push bond yields higher and make fixed-income investments more attractive than they’ve been in a while. That gives investors a viable alternative to stocks, which have already raised concerns of being overvalued or presenting a higher risk profile. The rise in interests rates could also, in turn, slow down economic growth by making it more expensive for people and businesses to borrow money.

Canadian markets have been much slower and steadier in general in the past few years, and the past week has somewhat continued that trend. The Toronto Stock Exchange (TSX) has experienced a longer seven day decline, but drops have not been as steep as in U.S. markets. It ended last week down 4% before closing down another 1.7% Monday as the downward pressure on markets around the world takes Canada’s largest exchange down with it. From last Thursday to Monday the S&P/TSX composite index fell 3.9%, while the S&P 500 index was off 6.2% over the three days.

Dan Hallett, vice president of HighView Financial Group, says corrections are a normal part of investing, and that even during this sustained bull market there have been previous speed bumps. He points out that in 2011, U.S. stocks dropped 18% and took several months to recover while Canadian stocks lost nearly 17% and took two years to recover. Both markets saw dips of more than 10% in 2015 that took months to recover. He said these were corrections and not bear markets, which we haven’t seen since the financial crisis.

Bank of Nova Scotia chief economist Jean-François Perrault says that financial volatility usually pushes people to put money back into U.S. treasuries, because they’re possibly the safest and most liquid of the asset classes out there. That can mean pulling money out of other asset classes, such as commodities and the Canadian dollar, the latter of which has dropped by more than a penny in recent days.