Oh No! The S&P 500 Is In A Correction
What the heck is going to happen next?
We are in a correction
On Thursday, March 13th, the S&P 500 fell by 1.33%, pushing the index down 10.08% from its previous all-time high. By definition, the S&P 500 is now in a correction. What does this mean? And more importantly, what’s going to happen next?
Let’s start with some context. The S&P 500 has posted gains of over 20% for the past two years—an achievement that hasn’t been seen since the late 1990s. A sudden 10% drop may feel painful, but if you’ve been invested in the market for at least two years, you’re likely still up significantly from where you started.
What’s going to happen next is uncertain but the best thing to do during a market correction is to zoom out and look at the bigger picture.
Corrections
Market corrections are not uncommon occurrances.
This is the 57th correction for the S&P 500 since 1929, meaning they occur roughly every 1.7 years. Unfortunately, they don’t follow a set schedule, making them difficult to predict. Out of the last 56 corrections, 22 turned into a market crash (a decline of 20% or more from the previous all-time high). However, 34 of them (or 60%) stopped short of a 20% decline, and the index ultimately rebounded.
These odds improve if we look at more recent history. Since 1974, only 6 out of 25 corrections (excluding the current one) have turned into bear markets—that’s just 24%.
Many corrections are short-lived. Between 2002 and 2021, a correction occurred, on average, every other year. In the years when a correction did occur, the average decline was 15%, yet the S&P 500 finished 17 of those years with an overall positive return.
Since there were no corrections in 2023 or 2024, it was statistically overdue.
While I don’t know how far the S&P 500 will decline before this correction ends, history suggests that brighter days lie ahead.
Correction Aftermath
Here are the average returns for the S&P 500 after a correction since 2008.
1 week +1.6% (66.7% of the time positive)
1 month -1.7% (40% of the time positive)
3 months +2.1% (60% of the time positive)
6 months +4.9% (73.3% of the time positive)
1 year +15.3% (86.7% of the time positive)
If you plan to stay invested in the market for at least a year, the odds are high that your portfolio will have a higher market value.
But What If This Is The Start Of A Bear Market?
It’s certainly possible that the S&P 500 will continue to decline and enter a bear market. However, history suggests that the opposite is more likely.
That said, if we do enter a bear market, it’s helpful to examine past downturns to understand what might unfold.
Between 1966 and 2021, the average bear market lasted approximately 15 months. They often end just as abruptly as they begin—consider the 2020 pandemic bear market, which lasted only 33 days.
Looking at broader historical trends:
The average bear market lasted 446 days, while the average bull market lasted 2,069 days—nearly five times longer.
The average loss during a bear market was -38.4%, while the average gain during a bull market was +209.2%.
What Should You Do?
For most investors, the best course of action is to do nothing. If you’re a long-term investor with a well-diversified portfolio, attempting to time market corrections and crashes is more likely to hurt than help. Instead, focus on your long-term investment plan and look for opportunities during the correction.
However, if you’re unhappy with your portfolio, this market correction may feel more painful than opportunistic. In that case, it might be time to reassess your investment strategy. If you’re not willing to endure occasional market downturns, investing may not be the right path for you.