Here's How Often a Correction Leads to a Bear Market (Hint: Not as Often as You Might Fear)

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Reuben Gregg Brewer, The Motley Fool

Sun, Mar 23, 2025, 9:30 AM 4 min read

The Nasdaq Composite (NASDAQINDEX: ^IXIC) and the S&P 500 index (SNPINDEX: ^GSPC) person some precocious dipped into correction territory. The media made a precise large woody of that fact, though the S&P 500 scale rapidly bounced backmost from its 10% diminution the precise adjacent day. Still, investors' emotions are moving precocious amid accrued marketplace volatility.

Some important humanities facts astir the markets mightiness assistance lessen their anxiousness -- and could adjacent promote them to leap backmost into the market.

If you're going to put successful stocks implicit the agelong term, the 1 information you person to travel to grips with is that Wall Street is simply a fickle place. Stocks volition spell up; stocks volition spell down; and it won't ever beryllium for evident reasons. That's existent connected an idiosyncratic level and astatine a radical level, from sectors to the marketplace arsenic a whole. It tin beryllium emotionally uncomfortable to ain stocks.

But conscionable due to the fact that a banal goes up oregon down 1 day, week, month, oregon twelvemonth doesn't mean it won't spell the other absorption the adjacent day, month, week, oregon year. Humans often task existent trends agelong into the future, adjacent erstwhile that doesn't marque a batch of consciousness oregon person immoderate ground successful humanities precedent. That's wherefore immoderate humanities investigation mightiness assistance arsenic the marketplace flirts with correction territory, oregon a driblet of 10%.

Indeed, 75% of the time, a correction does not crook into a carnivore marketplace (a driblet of 20%), according to information shared by the Carson Group. Going backmost to World War II, determination person been 48 corrections, and lone 12 of those corrections person gone connected to go carnivore markets. That's a beauteous comforting statistic.

The problem, of course, is that there's nary mode to cognize which of the corrections that hap volition yet crook into carnivore markets. This existent downturn could precise good extremity up being 1 of them (so overmuch for being comforted by statistics). And there's another, bigger information to consider.

The illustration supra is simply a semipermanent look astatine the show of a communal money that tracks the S&P 500 index. Notice that it heads higher and to the right, which is precisely what you privation to spot connected a show graph for an investment. But look closely, and you'll announcement determination are drawdowns each on the way.

Some of those terms declines were immense astatine the time, including the dot-com clang and the Great Recession. But now, they look similar humble squiggles on the path. That way has historically been higher and to the right, with the marketplace yet gaining backmost each of what it mislaid and past moving connected to caller highs. It tin instrumentality years for the process to play out, but truthful far, the marketplace has gone connected to emergence again, nary substance however emotionally stressful a downturn happens to be.

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