There have been 37 corrections since 1945, what are the chances shares fall more?

Equity market corrections and bear markets are as inevitable as death, and taxes yet they can feel like financial earthquakes. Small Industrials just had a -10.2% correction and are down -5.8% for the month at the time of writing after being down -2.8% in February.

Recently my younger, smarter and more hard-working colleague Josh (“I like to turn anecdote into data”) Clark and I were discussing the current market correction. While I blathered, Josh did a deep dive into the numbers around corrections to understand their frequency, depth, recovery, and what investors can learn from history.

Since 1945, using US data, there have been 37 stock market corrections, defined as declines of greater than 10% from recent highs. These occur roughly every two-and-a-half years on average. 

Bear markets, characterised by drops of 20% or more, are less frequent, appearing every seven years on average since World War II.

• Corrections often deepen: a 10% drop turns into a 13% decline about 80% of the time. 
• 48% of corrections since 1945 escalated to a fall of 15% or greater
• The data shows that less than 30% of corrections turn into bear markets.
• Bear markets are definitely not fun but corrections can be considered just a ‘cost of doing business’ as on average they’re recovered in just 4 months.
• Bear markets typically require a recession or a couple of quarters of negative GDP and earnings to take hold.
• The average bear takes two years and two months to come out of hibernation and regain their highs.

The good news? Markets tend to roar back after hitting bottom.

Historically, the S&P 500 has delivered an average return of +19% in the first year following a correction and +37% over two years.

After bear markets, the numbers are even more impressive: gains average +43% in the first year and +75% over two years.

What should individual investors do with this knowledge?

First, resist the urge to panic-sell during downturns. Timing the market is notoriously difficult and often leads to missing out on recovery gains. 

Diversification and sticking to a long-term plan are your best defences against volatility. We call this the ‘pick and stick’ approach.

And if you’re feeling stressed, remember what German-born British Financier Nathan Rothschild had to say on the matter:

“the time to buy is when there's blood on the streets… …even if the blood is your own”.

We’ve certainly spilt a bit of blood over the past 6 weeks but are following Rothschild’s advice.

In short, corrections and bear markets are part of investing’s natural rhythm. Stay calm, stay invested, and maybe keep a few stock market quotes handy - they’re cheaper than therapy!

These insights were presented as art of the QVG Capital March 2025 Investor webinar. Visit the QVG Capital website to access the full replay.