The U.S. stock market has just dropped 10% from its high set last month, hurt by worries about the economy and a global trade war.
T he fall for the S&P 500 is steep enough that Wall Street has a name for it: a “correction.” Such drops have happened regularly for more than a century, and market pros often view them as potentially healthy wipeouts of overdone euphoria, which could send stock prices too high if unchecked.
But corrections are frightening in the moment, particularly for every new generation of investors that gets into the market at a time when it seems like stocks only go up.
The S&P 500 is coming off two straight years with gains of more than 20%. Such stellar gains left the market looking too expensive to critics, who pointed to how prices rose faster than corporate profits.
Culling too-high enthusiasm among day traders is one thing. The larger fear always accompanying a correction is that it could be a warning sign of a coming "bear market," which is what Wall Street calls a drop of at least 20%.
Here’s a look at what history shows about past corrections, and what market watchers are expecting going forward.
The U.S. stock market initially jumped after President Donald Trump's election in November on hopes he'd bring lower taxes, less regulation for businesses and other policies that would drive corporate profits higher. All those gains have since disappeared, as Wall Street faces the potential downsides of Trump's White House for the economy.
The president has been making announcements on tariffs at a dizzying pace, first placing them on trading partners, then exempting some and then doing it all over again. The tariffs could hit every country that trades with the United States, which would raise prices for U.S. households and businesses when high inflation has already proven stubborn to fully subdue.
The fear is that tariffs could slow or even halt the solid growth the U.S. economy was showing when it ended 2024. Even if Trump ultimately goes forward with less painful tariffs, all the uncertainty around the will-he-or-won't-he rollout could prove damaging by freezing economic activity. Such concerns have shown up in the latest readings on consumer confidence, as well as companies' forecasts for future profits.
Trump himself has acknowledged his plans could affect the U.S. economy's growth.
All the uncertainty is also making things more complicated for the Federal Reserve, which had been cutting interest rates after getting inflation nearly all the way down to its 2% target. Cutting rates further would help the economy, but it could also put upward pressure on inflation.
The brunt of this sell-off has also hit stocks that critics were saying looked the most expensive after running wild through the frenzy around artificial intelligence. Nvidia, for example, has already dropped roughly 14% in 2025 so far after surging more than 800% through 2023 and 2024.
Most of the other big stocks in the “Magnificent Seven” that have dominated the market recently have also been lagging the rest of the S&P 500. Those seven stocks alone had accounted for more than half the S&P 500’s total return last year.
Every couple years, on average. Even during the historic, nearly 11-year-long bull run for U.S. stocks from March 2009 to February 2020, the S&P 500 stumbled to five corrections, according to CFRA. Worries about everything from interest rates to trade wars to a European debt crisis caused the pullbacks.
The U.S. market's last correction was in 2023, when the S&P 500 dropped 10.3% from the end of July into October. At the time, high Treasury yields were undercutting stock prices as traders accepted a new normal where the Fed would keep rates high for a while. But stocks would quickly turn higher as optimism revived that cuts to rates were on the horizon.
The last correction that did graduate into a bear market was in 2022. That's when the Fed first began cranking up interest rates to combat the worst inflation in generations. Worries rose that high rates would slow the economy enough to create a recession, one that ultimately never came.
Through the 2022 bear market, the S&P 500 fell 25.4% from Jan. 3 to Oct. 12.
Looking only at corrections since 1946 that managed to right themselves before turning into a bear market, the S&P 500 has taken an average of 133 days to hit bottom and lost an average of nearly 14% along the way, according to CFRA. The index has taken an average of 113 days to recoup its losses.
For declines that become bear markets, the damage is much worse. Going back to 1929, the average bear market has taken an average of nearly 19 months to hit bottom and caused a loss of 38.5% for the S&P 500, according to S&P Dow Jones Indices.
On paper, an investor can lose most of their money. From late 1929 into the middle of 1932, the stock market fell a little more than 86%, for example.
A bear market can also feel interminable: One lasted more than five years, from 1937 into 1942, where U.S. stocks lost 60%, according to S&P Dow Jones Indices.
In Japan, after the Nikkei 225 index set a record at the end of 1989, it sank and then took decades to fully recover. It wasn't until 2024 that it got back to that peak.
The Japanese example is an outlier, though. In almost every case, investors would have made back all their losses from a downturn for U.S. stocks if they simply held on and didn't sell. That includes the 2000 dot-com bust, the 2008 financial crisis and the 2020 coronavirus collapse.
No one knows. Some investors on Wall Street say they expect Trump to pull back on some policies if they prove to be too damaging, while others say the uncertainty alone is creating enough pain.
The economy has given signals that it's still relatively solid at the moment, including last month's jobs report, but the outlook looks cloudier than usual given all the unknowns.
© Copyright 2025 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
24 Comments
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Jay
Classic market overreaction. Corrections like this are a feature, not a bug - just a natural reset after two years of insane gains. Yeah, AI stocks got a little overheated, but anyone with half a brain knew a pullback was coming. The Magnificent Seven carried the whole market last year, so SOME profit-taking was inevitable.
And as for those them there tariffs? Pfft. Wall Street cares about earnings, not headlines. If companies keep making money, this dip is just another buying opportunity. Smart money is already loading up while retail panic-sells. Same story, different year!
Blacklabel
Buying opportunity of a lifetime to purchase the shares of high quality American companies.
not the time to be chasing trends though.
lincolnman
Welcome to the "Trump Correction" that will soon be the "Trump Recession", which will lead to the "Trump Depression"...
Business genius?
The Moron bankrupted a foolproof CASINO...and his Truth Social stock?
"Shares of Trump Media & Technology Group fell 4.5% Thursday and are now trading just above $19. They’ve lost more than half their value since the inauguration and have plunged 75% from the high of nearly $80 that they hit shortly after the stock debuted to public trading in late March 2024."
Loser is as Loser does...
lincolnman
Who’s the better businessman - and President?
Biden oversaw the biggest stock market gains in history, 9 consecutive quarters of economic GDP growth, 12 straight quarters of inflation decline…and the Moron from Mar-A-Lago ruined it in only 45 days…
Blacklabel
Oh so it’s Trump’s market already?
Blacklabel
ummm what?
Jay
For anyone panicking happening with what's happening with the stock market right now, I'll say this: imagine you walk into a store and see a really nice shirt, but it's a bit too expensive. You think, bloody hell, I wish this would go on sale. Well, guess what? That shirt just went on sale. And not just a little - like, a big sale.
Now, what do you do? You DON'T panic and say, "Oh no, the price dropped! That must mean the shirt is bad!" No, you take advantage of the deal and buy two or three, because you know it's still the same great shirt - just cheaper.
That's exactly what's happening with the stock market right now. The same strong companies that were more expensive a month ago are now selling at a discount.
DON'T be emotional, be SMART - and smart investors aren't scared - they're buying more while prices are low.
TokyoLiving
And this is the beginning with MAGA regime in power..
bass4funk
Ride it out, it will be ok.
HopeSpringsEternal
Normal market response to major shift in economic policy, which is WHY DJT was elected. The transition to job and wealth creation has begun!
American working, union members and middle-class want their jobs protected not shipped overseas, why they voted for DJT to fight for their economic future, by building in US.
DJT = long overdue revitalization of US industrial base!
HopeSpringsEternal
Market corrections are normal and healthy, and DJT is not focused on short term markets and Wall Street but rather MAINSTREET, creating jobs and investing in America will drive future economic growth, rising worker wages, and corporate profits.
HopeSpringsEternal
Markets trying to better gauge impact of DJT Admin's DOGE Govt. downsizing agenda, both Govt. headcount and Agency budgets.
Much of Agency spending according to Elon Musk is 'fraud' stemming from entitlement programs like Social Security and NGO's being funded illegally buy Federal Agencies, along with Poor Controls at Treasury.
Above DOGE efforts, big reason why interest rates and inflation are falling since Jan 20th = Markets LOVE It, why Bond Markets rallying!
HopeSpringsEternal
Unlike Japan, Bond market capitalization in US is historically larger than Equity markets, if you include all classes of bonds. So overall US financial markets are not doing badly, just a recent divergence between bond and equity markets that had been more correlated recently.
As US rates fall, equities tend to rally, so long as the economic fundamentals are solid - which they are.
fxgai
Good advice to follow if you want to be financially unsuccessful.
Correction territory? I’m looking to move some more funds into investments. If we reach bear market territory then I will do so to an even greater extent.
The US is switching from a government spending led economy back to a private sector led economy.
I don’t like the tariff stuff, but to focus on that is to ignore all the other policy coming that is gong to be good.
Taxes aren’t going up.
Government spending restraint is coming.
less bad regulation.
investment incentives.
Buy more now, and buy even more later if some folks want to sell it to you cheap.
GuruMick
Jay above...interesting analogy...a metaphor even...shirts and stocks.
Now , I dont want to buy shirts, but have a superannuation investment maturing soon and I think a drop in stock value may cost me the shirts I planned to not buy anyway.
Older people may lose .
Younger souls can "ride it out "
I maybe dead when the market returns
Hiro
It's almost as if electing a 78 year old malignant narcissist felon insurrectionist who's suffering from early stage dementia was a bad idea.
TaiwanIsNotChina
I bet it is the first one due directly to a president ignoring the advice of every sane economist.
TaiwanIsNotChina
Government spending is 1/4 of gdp and 3/4 of that is mandatory transfer payments and paying for Trump's tax cuts.
I'veSeenFootage
Ah yes, the stock market crashing is now officially a great thing! 5 trillion dollars of value lost in 3 weeks! Exactly what everyone wanted all along!
The Trump otakus obviously all got their marching orders and are parroting the talking points like the good little soldiers they are.
grc
It’s all Biden’s fault
fxgai
Is the government spending why the US economy is the biggest in the world?
Obviously that’s a no.
“mandatory” spending is a total nonsense to us non-Americans - politicians can change spending with a vote, and given what I read in the news it’s no doubt that there is a load of crap quality spending drag that can be cut in the US.
We know the same is true in Japan.
Low priority low quality spending can be cut, and that seems to be as true in the US as anywhere.
Paying for a tax cut is also a nonsense.
A tax cut is not spending.
US tax revenues have gone way up since the TCJA - revenues up, not down. You don’t have to “pay for” something that didn’t cost anything.
Go back to pre Covid spending levels and you’ve got a balanced budget or better.
fxgai
I remember that time Paul Krugman said that Trump’s election was gonna crash the economy… hahaha, good times
Blackstar
@fxgai
You really have no clue, do you.
Paying for a tax cut is also a nonsense.
A tax cut is not spending.
Even lunatic Doge types would accept that governments need to spend quite a lot of money to keep essential programs running. If less is coming in through taxes, it has to come from somewhere else.
I remember that time Paul Krugman said that Trump’s election was gonna crash the economy…
And he's being proven right.
The chimp fanboys at the top of the comments try to save face by saying that a correction is no big deal, but assume that this is the end of the story. You ain't seen nothing yet kids! Things are gonna get way worse, unless the years of subsisting on MacDonalds etc. mercifully bring about the removal of this insane individual from our mortal coil very soon.
Blackstar
"As Trump careers uncontrollably towards the 100-day mark, his approval ratings slide. He is already less popular than Joe Biden was at a similar stage. His honeymoon is history. Before November’s election, he claimed, falsely, that America was in an unprecedented mess. Such exaggeration is what Merton, who coined the phrase, called a “self-fulfilling prophecy”. Now, unintentionally, it’s coming true."
https://www.theguardian.com/commentisfree/2025/mar/15/honeymoon-is-over-trump-ukraine-war-tariffs