U.S. equity markets officially entered correction territory two weeks ago for the first time in 344 trading days. Tariff uncertainty and concerns about economic growth have been the primary catalysts behind the recent risk-off rotation. The 10% decline—the technical threshold for a correction—has been swift, particularly given that selling pressure began from a fresh record high on February 19.

However, while the economy has slowed this year, as LPL Research anticipated, it has not stopped. Corporate America continues to deliver double-digit earnings growth, and the solid fundamental footing supports LPL’s view that the economy is not entering a recession or a bear market. Historically tight credit spreads further reinforce this outlook. LPL’s message to investors is clear: don’t panic and stay focused on the long term. Volatility also brings opportunity, or as legendary investor Warren Buffett once said, “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”

The recent correction serves as a valuable reminder that bull markets are not linear. The downturn may feel particularly sharp due to the unusually low volatility and consistent gains seen in early 2024—a year that averaged a new record high every 4.4 trading days.

However, market corrections are historically common. According to Ned Davis Research, the S&P 500 has experienced a correction every 1.1 years on average since 1928. These corrections often create attractive buying opportunities. Since 1950, the S&P 500’s average maximum drawdown during a calendar year has been -13.7%, yet the average annual gain has been 9.5%, with 73% of years producing positive returns. When focusing on years in which the S&P 500 saw an intra-year drawdown between 10–20%, the annual average gain was 8.4%, with 64% of those years finishing higher. In other words, a 10% or more decline does not necessarily mean stocks will end the year lower.

Historically, after hitting a correction low, the S&P 500 has rebounded by an average of 13.1% over the following three months, with gains occurring 92% of the time. Looking further ahead, 12 months after a correction low, the market has gained nearly 30%.

Timing the market is challenging, and some of the best trading days occur at or near correction lows. Missing these key days can be costly. For instance, if an investor missed just one of the best trading days each year since 1990, their annual gain would drop to 6.1%—compared to 9.8% for a buy-and-hold strategy. Missing the two best days per year would reduce the annualized gain to just 3%. Yesterday’s nearly 600-point jump in the Dow is a perfect example of how unpredictable, yet crucial, “good days” can be.

We hope you find these updates helpful. As always, we are here to answer any investment questions you may have.

– Mark and Elise

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All information is believed to be from reliable sources; however, LPL makes no representation as to its completeness or accuracy. This research material has been prepared by LPL Financial LLC. Tracking #714723 (expires 3/26).