Short and not-so-sweet. That might be an apt description of the latest S&P 500 (^GSPC 0.16%) correction. The widely followed index recently fell more than 10% below its peak and officially entered correction territory. However, the S&P 500 bounced back somewhat within only a few days and is now less than 10% below its previous high.
Can investors breathe easy now that the S&P 500 correction seems to have ended? Here’s what history shows.
Recent S&P 500 corrections
Eight S&P 500 corrections have occurred over the last 10 years, including the most recent one. Some were short-lived but followed by a dismal performance over the next several months.
For example, the S&P 500 dropped by more than 10% in August 2015. Although the index didn’t remain in correction territory for very long, it remained below the previous peak for the rest of the year. In early 2016, the S&P 500 again fell more than 10% below the previous high. It didn’t regain the losses until the latter part of 2016.
In one case, an S&P 500 correction became a full-blown bear market that quickly ended. You’ll probably remember this one: It was during the COVID-19 pandemic of 2020. A bear market, by the way, is when a stock or index falls by 20% from the previous high.
However, the bad times didn’t always end so quickly. In early 2022, the S&P 500 entered into a correction that eventually became a bear market. The index didn’t regain its previous high until early 2024.
How many times over the last 10 years did an S&P 500 correction not become a bear market and instead set the stage for strong near-term gains? Zero.
Going back further
What does history show if we go back more than 10 years into the past? The S&P 500 has entered into correction 56 times since 1929, based on a Reuters analysis of Yardeni Research’s data. Technically, the S&P 500 didn’t exist in its current form with 500 companies until 1957. However, predecessors of the S&P index have been around for much longer. Yardeni’s older data included those previous versions of the index.
There’s good news and bad news for investors with these past S&P 500 corrections. First, the bad news: Corrections often linger for a while. Reuters found that the average correction lasts 115 days. That doesn’t bode well for anyone hoping to chalk up near-term gains.
The good news, though, is that S&P 500 corrections typically don’t lead to bear markets. Reuters determined that only 22 of the 56 previous corrections (roughly 39%) became bear markets. The average peak-to-trough decline of the corrections that didn’t lead to bear markets was 13.8%. That’s a painful drop, but not too painful.
If you’re wondering how the S&P 500 fared during the times that corrections became bear markets, brace yourself. The average decline was 35.6%.
Breathe easy?
Let’s assume that the S&P 500 correction is over and a bear market isn’t on the way. Can investors breathe easy? Yes and no.
As we’ve seen from the historical analysis, the end of a correction doesn’t mean happy days are here again. The S&P 500 could very well languish throughout much of this year and perhaps into 2026. The main culprit behind the most recent correction was fear about the potential impact of the Trump administration’s tariffs. We haven’t seen yet what that impact will be.
On the other hand, the S&P 500 has always delivered solid gains over the long term in the past. Although that doesn’t mean it will necessarily continue to do so, the odds should be pretty good that the index will perform well given enough time. I think investors who intend to remain in the market for 10 years or more can breathe easy knowing that history is on their side.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
