With the S&P 500 closing at 5521 yesterday, we’ve now dropped over 10% from all-time highs—meeting the official definition of a market correction.
The key question: How much more downside is ahead? While no one knows for certain, history provides useful insights into what’s likely next.
Corrections vs. Bear Markets: The state of the economy plays a crucial role. Drawdowns are deeper and last longer when accompanied by a recession. If the economy remains stable, history suggests the downside is likely more limited.
Here’s what the data tells us:
Since 1980, there have been 16 corrections.
6 turned into bear markets.
4 of those 6 happened during recessions.
The only exceptions? Black Monday (1987) & the 2022 bear market.
Key Takeaways:
When a correction occurs outside a recession, the S&P 500 has historically fallen 7.0% further on average.
When a correction happens inside a recession, the market has declined an additional 24% on average—a significantly worse outcome.
Time matters: Corrections outside recessions typically last 9 months, while those inside recessions stretch to 30 months on average.
What does this mean for investors?
If you believe we’re in (or heading into) a recession, history suggests a longer and more painful drawdown. If not, odds favor this being a typical correction, not the start of a bear market.
