Be prepared—not surprised—
by stock market corrections

Key takeaways:

• With so many conflicting signals in the current period of stock market consolidation, investors should remember that sharp market declines often occur without warning.
• Having a financial plan that fits an investor’s goals and risk tolerance can help them manage a spell of significant stock market volatility.

02/26/2025 – This may be a market of paradoxes, where bullish momentum and underlying caution quietly intersect. On one hand, nine out of eleven S&P 500^® Index sectors are positive for the year, typically a bullish sign of a broadening market. On the other hand, the percentage of investors with bearish outlooks in the weekly survey by the American Association of Individual Investors has been above 40% for three consecutive weeks—a historically rare occurrence.

With so many conflicting signals, it’s crucial for investors to remember—especially given the extraordinary resilience of the stock market over the past two years—that sharp market declines often occur without warning. Sudden drops can create panic, leading investors to make emotionally charged decisions that may undermine their long-term success.

The equity market has been rangebound since early December, which we believe is a consolidation phase within the ongoing bull market. Investors should remember that market corrections occur from time to time. Having a financial plan that aligns with an investor’s goals and risk tolerance can help manage the volatility.

Market volatility is the price investors pay for long-term gains. For instance, after the S&P 500 reached a record high on January 3, 2022, the stock market benchmark fell 25% to its bear-market low on October 12, 2022. However, investors who did not panic during this sell-off have been and continue to be rewarded; from the October 12, 2022, low, the S&P 500 has gained 76% on a total return basis through last Friday (February 21).

Similarly, February 19 marked the five-year anniversary of the pre-COVID market peak. During the height of pandemic uncertainty, the S&P 500 plunged 34% from peak to trough. However, following this steep selloff, the Index surged upward, achieving 149 record highs and climbing approximately 92% on a total return basis over the past five years.

Stock market drawdowns, while unsettling, have always been temporary. Investors who resist the urge to panic-sell during these volatile periods are usually rewarded with significant long-term gains. The market’s ability to recover from downturns reinforces the importance of maintaining a long-term investment horizon. As history has shown, downturns are not the end of the story; they are often a chapter in a much longer narrative of growth and resilience for investors who maintain a disciplined investment strategy.