- Most corrections don’t become bear markets—so no need to panic.
- Exactly, it’s smarter to plan for scenarios than to sell in fear.
- And if history repeats, corrections often turn into buying opportunities.
Historically, the stock market has shown a strong tendency to rebound from corrections rather than decline into prolonged downturns. Since 1950, only 27% of market corrections—defined as declines of 10% or more—have escalated into bear markets, while the majority have recovered and gone on to reach new highs. So, instead of selling everything in a panic, it’s better to focus on three key actions:
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Understand what you’re buying, especially the potential risks.
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Plan ahead for different scenarios—whether the correction turns into a bear market, declines further but stays within -20%, or rebounds to new highs.
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Execute your strategy based on the scenario that unfolds.
And most importantly—the hardest part—tune out the noise.
Looking at the image below, we can identify some important insights:
The table above refers to U.S. stock market corrections, meaning declines of up to -20%.
First, consider the frequency: on average, corrections like the one we’re currently experiencing (just over -10%) occur once every 1.2 years. Stronger corrections, however, tend to happen about once every three years. Many may not recall, but the last quarter of 2018 saw a similar event—a sharp correction that did not turn into a bear market.
One of the most interesting columns in the table is labeled "Average", which shows the market’s average performance following a correction. Historically, after a -10% correction, the market has returned an average of 30%, while after a -20% correction, the average return has been 16.3%.
Even in the worst cases, after a -10% drop, the market typically fell just another 2 percentage points before beginning to recover. Will things unfold the same way this time? No one can say for sure. But what we do know is that deep corrections often present investors with opportunities to buy at more attractive prices, as future returns tend to be positive.
Of course, some corrections do turn into bear markets. But if we prepare for all possible outcomes—whether the market dips further but stays within -20%, rebounds to new highs, or enters a bear phase—assign probabilities to each, and stick to a solid strategy, we can stay in control no matter what happens.
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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belongs to the investor. We also do not provide any investment advisory services.