On Thursday, March 13, 2025, the S&P 500 closed 10.1% below its record high of February 19—officially entering correction territory, defined as a decline of more than 10% but less than 20%. As we fact the market correction of 2025, investors are once more reminded that volatility is part of the investing journey. While some losses have been recovered, markets remain unsettled, and this latest market correction is stirring similar fears. It should also be noted that, as of Friday, March 21, the Nasdaq remained in correction territory, having declined 11.8% from its peak on December 16.
S&P 500 corrections typically occur when investors fear a recession is imminent. We then go from a correction to a bear market when investors’ recession fears are realized. For what it’s worth, as I write this blog, polymarket.com showed the odds of a recession at 33%. Polymarket is a prediction market platform where investors can wager on real-world events.
As we navigate today’s economic landscape, it’s natural to feel a sense of déjà vu. However, history has shown that these periods of uncertainty are typically temporary, and with prudent planning and perspective, we can weather the storm.
Understanding the causes—and how history has treated similar pullbacks—can help you keep perspective during the 2025 stock market correction.
Market Correction of 2025—Understanding the Current Market Environment
The market correction of 2025 has been driven by a combination of persistent inflation, interest rate uncertainty, and renewed global trade tensions.
- Persistent Inflation and Interest Rate Uncertainty—The Federal Reserve continues to monitor inflation, which remains elevated. While interest rates currently appear to be in a holding pattern, uncertainty lingers over future policy moves.
- Market Volatility—Major indices have fluctuated significantly, reflecting uncertainty in corporate earnings, global supply chains, and investor sentiment.
- Trade Tensions and Tariffs—The recent escalation in tariff policies and trade disputes has raised concerns about higher costs for businesses and consumers. New tariffs on key imports, including steel, aluminum, and semiconductors, are fueling inflationary pressures. In response, major trading partners, including the European Union and China, have announced countermeasures, increasing volatility in global supply chains. Most attribute the market’s fall into correction territory to the uncertainty created by these tariffs.
- Geopolitical and Economic Uncertainty—Trade wars, political instability, and global conflicts all contribute to market unease, prompting investors to question how long volatility will persist.
- Market forecasts lowered—In response to the uncertainty, well-known firms such as Goldman Sachs have lowered their 2025 S&P 500 market forecast.
Market volatility represents the cost of participating in the market. While the headlines may feel overwhelming, it’s important to put today’s market challenges into historical context. We’ve faced market downturns before—and we’ve emerged stronger from them.
Lessons from Past Market Crashes
While the 2025 market correction may feel different, it shares key characteristics with past downturns—including sudden drops, emotional headlines, and uncertainty about what comes next. We can’t guarantee that the market will recover, but we will find that history is on our side.
The COVID-19 Crash (2020): A Global Pandemic Sparks Panic
In early 2020, as the COVID-19 pandemic rapidly spread worldwide, markets responded with sharp and swift declines. Uncertainty about the virus, lockdowns, and economic shutdowns triggered a 34% drop in the S&P 500 in just 33 days—one of the fastest bear markets in history.
Investors feared a deep recession or worse. But what followed was equally remarkable: an unprecedented response from governments and central banks, with stimulus programs and near-zero interest rates. As a result, markets rebounded quickly, and by August 2020, the S&P 500 had fully recovered its losses.
This moment served as yet another reminder: the market can fall quickly, but it can also recover faster than many expect. As shown in the following graph, you may also want to remember that the market constantly gives us a reason to sell:
Source: We’re Gonna be like Three Little Fonzies Here
The Great Financial Crisis (2008-09): A Historic Market Collapse
Few market events in modern history were as severe as the 2008-09 financial crisis. Triggered by the collapse of the U.S. housing market and excessive risk-taking by financial institutions, the S&P 500 fell nearly 57% from its peak in 2007 to its bottom in March 2009.
At the time, investors feared the financial system was on the verge of collapse. Banks failed, unemployment skyrocketed, and panic took hold. However, those who stayed the course and remained invested saw a full market recovery—and then some.
By March 2013, the S&P 500 had fully recovered all its losses and went on to reach record highs in the following years. Those who sold at the bottom locked in their losses, but patient investors who remained invested benefited as markets rebounded.
Those who continued to add to their retirement savings along the way fared even better. Why? They benefited by purchasing even more shares at lower valuations. This led to even stronger gains as the market recovered. Believe it or not, how you behave during a bear market drives how much money you make in a bull market.
This graph provides a great example of the benefits of remaining invested even when the market falls:
Source: Dimensional Funds: Investing Can Be a Roller Coaster: Three Tips for Riding Out the Ups and Downs
The Dot-Com Bubble (1999-2000): Speculative Mania Meets Reality
The late 1990s saw an explosion in internet-based companies. Investors, eager to capitalize on the “new economy,” poured money into tech stocks, sending the Nasdaq Composite up nearly 400% between 1995 and 2000.
Then reality set in. Many companies lacked real profits and were built on speculation. As the bubble burst, the Nasdaq lost nearly 78% of its value from its peak in March 2000 to its bottom in 2002.
For investors who were overconcentrated in technology stocks, the losses were devastating. However, for those with a diversified portfolio, the damage was more manageable. Tech ultimately recovered, with some of today’s largest companies—like Amazon, Apple, and Google—emerging stronger than ever.
Black Monday (1987): The Worst One-Day Market Drop in History
On October 19, 1987, the Dow Jones Industrial Average fell 22.6% in a single day—the largest one-day percentage drop in U.S. stock market history. Panic selling triggered the crash, and investors feared a prolonged economic downturn.
Yet, the market rebounded quickly. Within two years, stocks had fully recovered. Those who stayed invested and avoided panic-selling ultimately saw gains as the bull market resumed.
Stock markets quickly recovered from this downturn. In just two trading sessions, the Dow regained 57% of its total losses from Black Monday. Less than two years later, US stock markets surpassed their pre-crash highs.
How Tariffs Have Impacted Markets in the Past
Trade disputes and tariffs have a long history of disrupting markets and creating short-term volatility. However, in most cases, economies adjust, adapt, and recover.
- 2018-2019 U.S.-China Trade War – Tariffs were imposed on hundreds of billions of dollars worth of goods, impacting supply chains and raising costs for businesses. While markets reacted negatively at times, they eventually stabilized as trade agreements were renegotiated.
- 1930 Smoot-Hawley Tariff Act – One of the most infamous tariff policies, this act raised duties on over 20,000 imported goods and worsened the Great Depression. However, trade relationships evolved, and global economies rebounded with better trade policies in the decades that followed.
- Tariffs During the 1970s Stagflation – Tariffs were used to protect domestic industries during a period of high inflation and slow growth. While they caused economic pain in the short term, markets adjusted, and inflation was ultimately brought under control.
While new tariffs are concerning, remember that markets have historically adapted to changes in trade policy. Diversification and long-term planning remain key to navigating these challenges. Today’s tariff concerns echo these past events—but time and again, markets have shown resilience in the face of policy uncertainty.
Maintaining Perspective
It’s essential to recognize that financial markets are cyclical. Bear and bull markets are inevitable, and even if you wish you had sold at what turned out to be a market peak—or regret having missed a buying opportunity—you will likely get another chance in the future.
A well-thought-out asset allocation remains the foundation for effective investment planning. Diversification, discipline, and patience remain your best allies.
These past crises remind us that even in the worst moments, markets recover. Those who remain patient and focused on long-term goals tend to be rewarded over time.
When you invest, you should expect markets to fluctuate, going both up and down. As shown in the following graph, from 1979 to 2023, the US stock market’s largest intra-year decline averaged 14%.
Source: Dimensional Funds: Investing Can Be a Roller Coaster: Three Tips for Riding Out the Ups and Downs
Despite those declines, the market delivered positive full-year returns in 37 of the past 45 calendar years. This serves as a reminder of the importance of focusing on the long term. It can also help reduce any uneasiness caused by such declines.
Remember, how you respond during a downturn—whether it’s the market correction of 2025 or any future decline—can have a lasting impact on your long-term financial outcomes.
Strategies to Navigate Market Volatility
- Avoid Market Timing – Trying to predict market bottoms and tops is nearly impossible. Staying invested is often the best strategy.
- Revisit Your Financial Plan – If market volatility has you worried, take time to review your investment strategy with your financial advisor.
- Maintain a Diversified Portfolio – Spreading investments across different asset classes can help smooth out market fluctuations.
- Keep a Long-Term Perspective – Remember, downturns are temporary, but long-term wealth accumulation comes from patience and discipline.
Final Thoughts: This Too Shall Pass
Periods of market volatility and economic uncertainty can be unsettling, but history reminds us that markets recover and long-term investors are rewarded.
If you’re feeling uncertain about today’s market, let’s talk. I’m here to help you navigate these challenges and ensure your financial plan remains aligned with your goals.
Remember: This, too, shall pass.
If the 2025 market correction has you second-guessing your financial plan, now is a good time to schedule a brief call. A second look at your plan might be the best investment you make this week. We’ve weathered uncertainty before—and history reminds us that we’ll do so again.
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