The recent market volatility has seemed so fierce that it feels like it’s been going on for far longer than it has. In fact, it’s only been a little over a month since the S&P 500 first closed in correction territory (Source: Based on S&P 500 prices per Bloomberg. Correction measured as the recent S&P 500 high on 2/19/25 and its first 10% drawdown from that point on 3/13/25), which is measured by the index closing 10% lower than its most recent high. Of course, it’s our belief that this market behavior is expected when you introduce the level of uncertainty that has been brought forth from the current administration’s outlined plan to impose tariffs globally. We believe it’s still debatable whether the U.S. will enter or is currently enduring a recession. While that answer may impact where the markets go from here, we also believe it’s important to look at history as a roadmap. Of course, the question investors seem to have is – how long and to what extent will the market slide? Does the market slide into bear market territory, which is 20% lower than its most recent high? By our estimation, there have been 12 distinct market correction periods in the past 50 years. Five of those 12 market corrections did slide into a bear market. Let’s summarize each instance:

1. The 1970s Rising Inflation – attributed largely to poor monetary policy; the inflation rate, as measured by the year-over-year increase in the Consumer Price Index, was 8% on average for much of the 1970s. This was the catalyst for the markets entering a correction, when the S&P 500 first closed in a correction on 4/27/73 and then fell into a bear market on 11/27/73 – a cycle that lasted for over 7 years. (Source: S&P 500 Index prices per Bloomberg. Consumer Price Index year-over-year rates from Bloomberg.)

2. The Recession of the Early 1980s – the recession of the early 1980s was arguably an extension of the 1970s inflation crisis. However, it was its own market correction as a new market high occurred between the end of the 1970s inflationary period and the beginning of this recessionary period. The market slid into a correction on 8/24/81 and fell into a bear market on 2/22/82. (Source: S&P 500 Index prices per Bloomberg.)

3. The 1984 Correction – in what was more of a technical correction in the wake of the market running up following the early 1980s recession, this was a more short-lived correction. The market first slid into correction on 2/13/84 but never fell into a bear market. (Source: S&P 500 Index prices per Bloomberg.)

4. The Black Monday Market Crash – the infamous Black Monday occurred on 10/19/87, however, this ultimately was the beginning of a larger and longer market correction. In fact, the market first closed in correction during this period on 10/15/87, and then infamously cratered into a bear market on Black Monday (10/19/87). (Source: S&P 500 Index prices per Bloomberg.)

5. The Recession of the Early 1990s – this period was ultimately a mild recession that was sparked in part by oil price volatility from the Gulf War. As a result, the market experienced a fairly short-lived correction that began on 8/17/90 but was spared a bear market. (Source: S&P 500 Index prices per Bloomberg.)

6. The Tech Bubble Correction – although the tech bubble of the mid to late 1990s was largely a run up in the market, there was a brief correction (and scare) in the back half of 1998. The market slid into correction on 8/14/98; a period that only lasted about 3 months and one that never succumbed to a bear market. (Source: S&P 500 Index prices per Bloomberg.)

7. The Tech Bubble Burst – this is when the tech bubble party finally ended. Unlike the fleeting correction in 1998, this one was far more severe and longer lasting. In fact, this was the second most severe of the 12 corrections, trailing only the 2008 Financial Crisis. The market first slid into correction on 10/11/00, fell into a bear market on 3/12/01, and bottomed on 10/9/02, losing about half of the value of the index’s peak. (Source: S&P 500 Index prices per Bloomberg.)

8. The 2008 Financial Crisis – in what was the most catastrophic banking crisis since the Great Depression, the 2008 Financial Crisis was the most severe and consequential correction of them all. The 2008 Financial Crisis completely changed how the U.S. banking and financial system is regulated. What began as a market correction on 1/8/08, spiraled into a bear market on 7/14/08, and ultimately deteriorated over half of the value in the S&P 500 in September 2008 due to overleveraged consumers and banks. (Source: S&P 500 Index prices per Bloomberg.)

9. The 2015 Correction – concerns around economic contagion from Europe sparked fears in the U.S. markets. Greece defaulted on their debt payments to the International Monetary Fund (“IMF”) and concerns sparked that Greece’s debt crisis could be the start of many countries defaulting on their own debt obligations. This caused the market to fall into correction on 8/24/15 but ultimately avoided a bear market as contagion fears abated in the fourth quarter of 2015. (Source: S&P 500 Index prices per Bloomberg.)

10. The 2018 U.S. Rising Rates – similar to what we are witnessing in this current sell off, trade war tensions between the Trump administration and China coupled with the Federal Reserve signaling its desire to tighten monetary policy put pressure on the U.S. markets. An extreme sell off began with the S&P 500 cratering into correction territory on 12/14/18. While the veracity and speed of the sell off was extreme during December 2018, the market never fell into bear territory and ultimately was a short-lived cycle. We believe this period closely resembles what we are currently experiencing, considering the parallels between trade war threats and the Federal Reserve’s stance on monetary policy. (Source: S&P 500 Index prices per Bloomberg.)

11. The COVID-19 Pandemic – the COVID-19 global health pandemic caused global markets to suffer their sharpest and quickest decline, ultimately leading to a global recession. The S&P 500 made a new high on 2/19/20; however, as news began to develop around the severity of COVID-19, the S&P 500 quickly fell into correction on 2/27/20 and rapidly sank into a bear market on 3/12/20 as businesses began closing in efforts to thwart the spread of the disease. The Federal Reserve’s quick and unprecedented actions ultimately made this a short-lived bear market; however, the repercussions of the event are still being felt to this day, as the economy deals with the battle with inflation, given the extreme accommodative monetary policy deployed during this period. (Source: S&P 500 Index prices per Bloomberg.)

12. The 2022 Bear Market – ultimately spurned by the beginning of an inflation crisis from the Federal Reserve’s unprecedent accommodative monetary policy in response to the COVID-19 global health pandemic, the S&P 500 suffered an extreme correction in 2022. The S&P 500 first fell into correction on 2/22/22, spiraling into a bear market on 6/13/22. While the markets ultimately snapped back in 2023 with a banner year, it wasn’t until December 2023 before the market clawed its way back to its previous 2022 high. (Source: S&P 500 Index prices per Bloomberg.)

How Far May We Fall?

We have noticed one of the popular questions during this (and any) sell off is – how much further will we decline? We believe measuring the depths of other market sell offs from the aforementioned corrections may provide a barometer as to how much further the market could sell off.

Source: Data from Bloomberg. Measures the biggest return drop from the period’s most recent market high. “The 1970s Rising Inflation” period made its last high on 1/11/73 and experienced its low on 10/3/74. “The Recession of the Early 1980s” period made its last high on 11/28/1980 and experienced its low on 8/12/82. “The 1984 Correction” period made its last high 10/10/1983 and experienced its low on 7/24/84. “The Black Monday Market Crash” period made its last high on 8/25/87 and experienced its low on 12/4/87. “The Recession of the Early 1990s” period made is last high on 7/16/90 and experienced its low on 10/11/90. “The Tech Bubble First Correction” period made its last high on 7/17/98 and experienced its low on 8/31/98. “The Tech Bubble Burst” period made its last high on 9/1/00 and experienced its low on 10/9/02. “The 2008 Financial Crisis” period made its last high on 10/9/07 and experienced its low on 3/9/09. “The 2015 Correction” made its last high on 7/20/15 and experienced its low on 2/11/16. “The 2018 U.S. Rising Rates” period made its last high on 9/20/18 and experienced its low on 12/24/18. “The COVID-19 Pandemic” period made its last high on 2/19/20 and experienced its low on 3/23/20. “The 2022 Bear Market” period made its last high1/3/22 and experienced its low on 10/12/22. The “2025 Tariff Crisis” made its last high on 2/19/25 and its current low this cycle was 4/8/25. The “Average” is an average max drawdown of all periods shown on the graph.

As we can see above, drawdowns have ranged anywhere between about -13% to about -55%, with the average drawn hitting around -30%. So how far do we drop? Well, history suggests that we certainly could have a lot more to fall from these levels. However, the most severe drawdowns were attributed to significant economic conditions that had been building for years. However, you’ll notice the more recent cycles have not been as severe, which is largely attributed to the Federal Reserve’s tool kit and response to recent market corrections and bear markets. These tactics were really first introduced to the degree we see them employed by the Federal Reserve today by Ben Bernanke during the 2008 Financial Crisis. The reality is that no one really knows where the bottom is; however, this cycle has so far bottomed out at -18.75% and seems to have shown some resistance to entering a bear market.
While many economists believe there is an increasing likelihood of a U.S. economic recession, we feel it’s centered around the probability whether the global trade war between the U.S. and other nations resolves quickly. It seems to us that the Trump administration and many of the affected nations appear willing to make concessions and come to an agreement to abate the imposed tariffs. However, it does seem that tensions may continue between the U.S. and China. That said, the uncertainty as to whether and what extent the Trump administration strikes agreements with these nations may continue to weigh on the markets. The bottom line, in our estimation, is that the market still carries real downside risk; however, at this moment, we contend the risk currently aligns most closely with both the 2015 and 2018 corrections.

How Long Will the Cycle Last?

Source: Data from Bloomberg. Measures the number of trading days between the period when the S&P 500 first closed in correction (i.e.: -10% or lower from its most recent all-time high) and the period it closed at or above its previous all-time high. “The 1970s Rising Inflation” period made first closed in correction on 4/27/73 and met/exceeded its previous all-time high on 7/16/80. “The Recession of the Early 1980s” period first closed in correction on 8/24/81 and met/exceeded its previous all-time high on 11/2/82. “The 1984 Correction” period made first closed in correction on 2/13/84 and met/exceeded its previous all-time high on 1/18/85. “The Black Monday Market Crash” period made first closed in correction on 10/15/87 and met/exceeded its previous all-time high on 5/18/89. “The Recession of the Early 1990s” period made first closed in correction on 8/17/90 and met/exceeded its previous all-time high on 2/8/91. “The Tech Bubble First Correction” period made first closed in correction on 8/14/98 and met/exceeded its previous all-time high on 11/20/98. “The Tech Bubble Burst” period made first closed in correction on 10/11/00 and met/exceeded its previous all-time high on 10/20/06. “The 2008 Financial Crisis” period made first closed in correction on 1/8/08 and met/exceeded its previous all-time high on 3/30/12. “The 2015 Correction” period made first closed in correction on 8/24/15 and met/exceeded its previous all-time high on 4/15/16. “The 2018 U.S. Rising Rates” period made first closed in correction on 12/14/18 and met/exceeded its previous all-time high on 4/11/19. “The COVID-19 Pandemic” period made first closed in correction on 2/27/20 and met/exceeded its previous all-time high on 8/7/20. “The 2022 Bear Market” period made first closed in correction on 2/22/22 and met/exceeded its previous all-time high on 12/12/23. The “Average” is the average cycle length of all periods shown on the graph.

Source: Data from Bloomberg. Measures the number of trading days between the period when the S&P 500 first closed in correction (i.e.: -10% or lower from its most recent all-time high) and the period it closed at lowest point in the cycle. “The 1970s Rising Inflation” period made first closed in correction on 4/27/73 and closed at its cycle’s lowest point on 10/3/74. “The Recession of the Early 1980s” period first closed in correction on 8/24/81 and closed at its cycle’s lowest point on 8/12/82. “The 1984 Correction” period made first closed in correction on 2/13/84 and closed at its cycle’s lowest point on 7/24/84. “The Black Monday Market Crash” period made first closed in correction on 10/15/87 and closed at its cycle’s lowest point on 12/4/87. “The Recession of the Early 1990s” period made first closed in correction on 8/17/90 and closed at its cycle’s lowest point on 10/11/90. “The Tech Bubble First Correction” period made first closed in correction on 8/14/98 and closed at its cycle’s lowest point on 8/31/98. “The Tech Bubble Burst” period made first closed in correction on 10/11/00 and closed at its cycle’s lowest point on 10/19/02. “The 2008 Financial Crisis” period made first closed in correction on 1/8/08 and closed at its cycle’s lowest point on 3/9/09. “The 2015 Correction” period made first closed in correction on 8/24/15 and closed at its cycle’s lowest point on 2/11/16. “The 2018 U.S. Rising Rates” period made first closed in correction on 12/14/18 and closed at its cycle’s lowest point on 12/24/18. “The COVID-19 Pandemic” period made first closed in correction on 2/27/20 and closed at its cycle’s lowest point on 3/23/20. “The 2022 Bear Market” period made first closed in correction on 2/22/22 and closed at its cycle’s lowest point on 10/12/22. The “Average” is the average cycle length of all periods shown on the graph.

We believe it’s important to distinguish between the length of a correction’s cycle and when it bottoms. While many investors view the bottom of the cycle as the point in which the cycle has ended, that’s not the case. As we can see from the above charts, while the average cycle may bottom at around 6 months, the cycle itself may last nearly 2 years. In our view, this distinction is important for two reasons: 1. Nobody knows a cycle has bottomed until the cycle has actually ended, and the bottom can be viewed in hindsight, and 2. The end of the cycle is the point in time where investors have fully recovered the losses incurred during the cycle.

The good news is that the above charts indicate that cycles may bottom in the intermediate term. Additionally, the length of the cycles themselves and when they bottom out seemed to have shortened in recent years because of the Federal Reserve’s response. While it remains to be seen about this period, there are certainly enough tools from both the administration and the Federal Reserve to repair the damage to make this cycle fall on the shorter end.

What to expect in the meantime?

Source: Data from Bloomberg. Measures the number of periods when the S&P 500 had positive returns from a recently created low in the cycle. “The 1970s Rising Inflation” period made first closed in correction on 4/27/73 and met/exceeded its previous all-time high on 7/16/80. “The Recession of the Early 1980s” period first closed in correction on 8/24/81 and met/exceeded its previous all-time high on 11/2/82. “The 1984 Correction” period made first closed in correction on 2/13/84 and met/exceeded its previous all-time high on 1/18/85. “The Black Monday Market Crash” period made first closed in correction on 10/15/87 and met/exceeded its previous all-time high on 5/18/89. “The Recession of the Early 1990s” period made first closed in correction on 8/17/90 and met/exceeded its previous all-time high on 2/8/91. “The Tech Bubble First Correction” period made first closed in correction on 8/14/98 and met/exceeded its previous all-time high on 11/20/98. “The Tech Bubble Burst” period made first closed in correction on 10/11/00 and met/exceeded its previous all-time high on 10/20/06. “The 2008 Financial Crisis” period made first closed in correction on 1/8/08 and met/exceeded its previous all-time high on 3/30/12. “The 2015 Correction” period made first closed in correction on 8/24/15 and met/exceeded its previous all-time high on 4/15/16. “The 2018 U.S. Rising Rates” period made first closed in correction on 12/14/18 and met/exceeded its previous all-time high on 4/11/19. “The COVID-19 Pandemic” period made first closed in correction on 2/27/20 and met/exceeded its previous all-time high on 8/7/20. “The 2022 Bear Market” period made first closed in correction on 2/22/22 and met/exceeded its previous all-time high on 12/12/23. The “Average” is the average cycle length of all periods shown on the graph.

Source: Data from Bloomberg. Measures the average return of the S&P 500 during its rally periods. “The 1970s Rising Inflation” period made first closed in correction on 4/27/73 and met/exceeded its previous all-time high on 7/16/80. “The Recession of the Early 1980s” period first closed in correction on 8/24/81 and met/exceeded its previous all-time high on 11/2/82. “The 1984 Correction” period made first closed in correction on 2/13/84 and met/exceeded its previous all-time high on 1/18/85. “The Black Monday Market Crash” period made first closed in correction on 10/15/87 and met/exceeded its previous all-time high on 5/18/89. “The Recession of the Early 1990s” period made first closed in correction on 8/17/90 and met/exceeded its previous all-time high on 2/8/91. “The Tech Bubble First Correction” period made first closed in correction on 8/14/98 and met/exceeded its previous all-time high on 11/20/98. “The Tech Bubble Burst” period made first closed in correction on 10/11/00 and met/exceeded its previous all-time high on 10/20/06. “The 2008 Financial Crisis” period made first closed in correction on 1/8/08 and met/exceeded its previous all-time high on 3/30/12. “The 2015 Correction” period made first closed in correction on 8/24/15 and met/exceeded its previous all-time high on 4/15/16. “The 2018 U.S. Rising Rates” period made first closed in correction on 12/14/18 and met/exceeded its previous all-time high on 4/11/19. “The COVID-19 Pandemic” period made first closed in correction on 2/27/20 and met/exceeded its previous all-time high on 8/7/20. “The 2022 Bear Market” period made first closed in correction on 2/22/22 and met/exceeded its previous all-time high on 12/12/23. The “Average” is the average cycle length of all periods shown on the graph.

Although a given cycle may persist for years, it does not mean that the market cannot go up and opportunities cannot be had. In fact, each period has had quite a few rallies within it, and some have realized impressive returns historically. As shown above, each cycle had an average of about 8 rallies with each rally returning around 6% on average.

Conclusion

While there certainly seem to be more questions than answers as to when we will reach a bottom in this cycle and when this cycle will ultimately end, these cycles tend to breed opportunity, both within the cycle itself and certainly coming out of the cycle. As we observed and discussed from the charts above, there is certainly continued downside risk to the market for the foreseeable future; however, it does not mean the market is devoid of opportunity. We believe the intra cycle rallies present tactical opportunities and the period’s volatility certainly presents positioning opportunities. In our opinion, it’s also worth noting that we are observing this just from the prism of a broad-based index (i.e.: the S&P 500 Index). As market participants will attest, there are certainly pockets of the broad market that will respond faster and stronger than others. Because of this, we believe it’s important to leverage the proper tools to best assemble an efficient asset allocation model to capitalize on these tendencies. While we believe simply sitting on and collecting broad market exposure will provide return from here, proper asset allocation alignment will potentially maximize risk adjusted return for you portfolio.

Disclosure
All discussions regarding the S&P 500 Index are for illustrative purposes only. S&P 500 is a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States.
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