How often do stock market corrections occur (down more than 10% from recent high): Answer: every couple of years

[progree]

Last edited Fri Mar 14, 2025, 12:25 AM - Edit history (3)

on average.

A 10% drop for stocks is scary, but isn't that rare, AP, 3/13/25

. . . How often do corrections occur?

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. . . .

. . . 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.

More, including on bear markets (which begin at 20% down): https://finance.yahoo.com/news/10-drop-stocks-scary-isnt-200738449.html

ICYMI, the S&P 500 closed down 10.1%, and is now officially a correction.
Details in the post I've been updating and kicking the last several market days: https://www.democraticunderground.com/111699775

Yes, I know, we've never had a profoundly insane person at the helm before. But you never know, during his first term (admittedly we had some guardrails and not completely ridiculous cabinet members like we do now), the S&P 500 gained 66.4%, per Axios.

I don't think that's with dividends. Including reinvested dividends, and net of expenses, the VFIAX (S&P 500 Index Admiral fund) gained 83.04% from 1/20/17 to 1/20/21 (an average annual 16.32% rate of return)
https://www.morningstar.com/funds/xnas/vfiax/chart

Myself, I plan to wait until 20% down, and then over-allocate to stocks. And more so at 30% down if we get there. Yes, I believe in market timing, it's called buying stocks on sale, and for the U.S. market, this has ALWAYS worked out well. If someone has an exception, please post it. When did the stock market NOT recover from a dip or dive and go on to set a subsequent new all time high?

Edited to add 1010p EDT after 13 replies:

I will be over-allocating to stocks by buying a broad-based fund like a U.S. total market index fund, or an S&P 500 index fund, or an equal-weight S&P 500 index fund, like RSP. I can say with high confidence that the total market as a whole (or nearly total market like S&P 500) will eventually recover. I would NEVER make such a claim about an individual stock or a collection of a dozen or 20 or 30 stocks. I have more on that in post#13.

Shamefacedly I admit to selling broad based funds during the Covid crash. At the time, I was far above the recommended allocation in stocks for someone my age, and I just couldn't take it. That was after FOUR TEN-FOLDS increase (that's 10,000-fold) in Covid infections in the U.S., and no sign of a slowing pace. Italy and New York City were being devastated with refrigerator trucks filled with bodies and no room at hospitals. The Fuckwad-In-Chief at the time was promoting light bulbs up the ass, bleach, and horse-dewormer. Vaccines were, most people thought, several years away.

I just couldn't take it anymore. So yes, I sold a lot of stock funds when they were way down. And yes, the market recovered and went on to new highs like in a couple of years, so I suffered an extraordinary loss compared to just holding on. (I didn't sell everything, I just went to an allocation level that was much closer to what is recommended for someone my age (late 60's at the time).

The market recovered in just a couple years or so. Overall, the S&P 500 with reinvested dividends, as measured by the performance of Vanguard's S&P 500 Index fund, VFIAX, rose 83% in tRump's first term, an average annualized return of 16.3%/year.

I learned a valuable lesson: the right allocation is the one that one can stick to. Panic selling the market after a big drop is almost always a mistake. (it only works out if one buys back when the market is even lower, i.e. when things are even scarier)

My latest allocation, figured out just now, March 13 after the close, is 52% equity, 48% fixed income. That is still somewhat above what's generally recommended for someone my age, but it's one I can live with and will stick with (except to raise the equity allocation by like 5% during bear markets).

I always keep in mind that people over the long run do better against inflation and living expense withdrawals (e.g. 4%/year in the first year with withdrawals increasing in subsequent years at the rate of inflation) with a high allocation of stocks (but less than 100%) according to innumerable simulations performed by authors of AAII Journal and elsewhere, and have a lower risk of running out in a 30 year or n years after withdrawals begin. The risk of running out to me is the only one I'm really concerned about. That is my guiding star.

I also keep in mind, that when I sell, I have to also make sure that I buy again, and buy at a lower price than I sold. Likewise when I buy to the extent that I'm over-allocated in equities, I have to decide when to sell to get back to my target allocation. Obviously if I sell at a lower price than I bought, that's bad. (Keeping in mind also the "anchoring" behavioral mistake of making too much of what one bought or sold something for, rather than dispassionately looking at the situation as if it is someone else's money, and so when something was bought or sold is irrelevant and has no emotional pull).

In other words, every decision is a round-trip decision.

People who sell in a panic with the idea of waiting until things "settle down" usually wait too long before deciding it's safe to buy stocks again -- in other words, they buy back at a higher price, usually way higher, than they sold for. It only works when one buys back when the market is even further down, which is a time of even greater panic.