🪣 A correction, not a crisis

Hey hey, happy Monday!

Sanity check for my favorite humans. How are y’all holding up? What questions can I help you with? I’m proud of you for staying invested during these crazy days, just know that 💙

Today, a 5-minute read on what everybody is missing when they scream about a stock market correction. It’s not a crisis, babes. At least not yet.

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One lesson you learn as you get older is how complicated the world can be.

Bad people don’t exist — just intrinsically good people with horrible baggage. Financial decisions can’t be made on a spreadsheet. Just because you want to win doesn’t mean somebody else has to lose.

Society has a knack for putting things into neat, clean buckets. But unfortunately, reality isn’t so tidy

I’ve thought about this a lot lately amid the stock market commentary that seems to be coming from all corners of the earth now.

On Thursday, the S&P 500 officially dropped 10% from its 52-week high—what Wall Street calls a correction. A word that you’ve probably heard in panicked tones lately. I sure have – from my pop culture guilty pleasure podcasts to my text threads.

People have painted this selloff as the big, bad Minsky moment that the market had coming. Fear has surged to levels we’ve seen in the depths of past crashes. Panic is overtaking everything. 

Labels make complicated situations easier to digest. I get it.

But I know you’re reading this for a sane, measured take on what’s happening…not another OMG CORRECTION! doom take.

And my sane, measured take is that, well…it’s complicated.

Technically, a correction is the midpoint between calm and a crisis.

And even though the world may feel terrible, we’re still a long ways away from the dreaded market crashes of old trader lore.

Before we get into it, I want to make one thing very clear.

A lot of what’s coming out of DC is decidedly not normal, and I’m not about to sanewash everything that’s going on with a fake smile. Wall Street is really good at that, and you deserve better.

Still, in markets, DC isn’t the center of the universe. Still, in the markets, DC isn’t the center of the universe. Corporate profits and the economy are the sun that the stock market orbits. Sometimes, these two circles overlap, and government policy starts impacting our decisions on how to spend, save and invest. 

Understanding this is the key to figuring out where the stock market goes from here.

So let’s talk about corrections.

Corrections happen more often than you think.

Corrections sound scary, but we’ve been here before. This isn’t the first time that a podcaster has panicked over the stock market or CNBC has run a Markets in Turmoil special.

Since 1950, the S&P 500 has dropped 10% or more 34 times. That’s right – about once every couple of years on average.

Each has happened under different circumstances, and because of this, they’ve looked and felt different. Some are fast and furious, while others are a slow grind lower. But the effect on our portfolios has been measurably similar.

This time around, the S&P 500 took 22 calendar days to drop 10%, making it the seventh-fastest correction in the past seven decades.

I’m telling you this so you know your anxious feelings are especially valid here. This has been a dramatically sharp correction. 

Obviously, we’d prefer portfolio losses that don’t churn our stomachs and rattle our nervous systems. But luckily, the speed and magnitude of this correction alone isn’t a sign of anything sinister – even if the headlines are a little more unhinged than usual.

Corrections aren’t crises.

Many drops feel like crises in the moment, but few become defining points in history.

Remember those 34 corrections we were talking about? Only a third of them turned into market crashes – or a 20%+ drop in stock prices (an event that Wall Street calls a bear market). 23 of them turned before reaching 20%, and ultimately were blips on the radar of your long-term investing journey.

It’s hard to pull a thread through every single drop on Wall Street, but I do think you can see one pattern between corrections and crashes.

Just four out of 23 corrections – or drops between 10 and 20% – coincided with an economic recession, while seven out of the last 11 crashes bigger than 20% overlapped with a recession.

The stock market has one of the best sniffers around when it comes to economic trouble. Typically, we see corrections when there’s a noticeable crack in the economy, or when the market needs to cool off after a long stretch of gains. 

So as you watch prices fall, consider this a warning sign.

Yes, the economy is under pressure from years of high interest rates, plus large-scale government layoffs and an administration hell-bent on drastic tariffs and big policy changes.

But let’s remember where we are at this point in time. Job market and spending data isn’t necessarily bad, even if it could get worse in the coming months. Earnings estimates for 2025 have stayed surprisingly strong, which tells me that Wall Street isn’t sweating this environment enough to actually change their numbers.

We’re essentially stuck in the great wait again — companies aren’t hiring or firing people, businesses aren’t investing in growth, and Americans aren’t buying houses. Meh.

Add that to a stock market that’s capped an incredibly strong two years, and you have a recipe for lower prices. If you invested $100 in an S&P 500 fund at the beginning of 2023, you’ve made about $50 on that investment even after this 10% drop.

If this policy fog does lead to mass unemployment or scorching inflation, then we can talk about bear markets.

For now, though, we don’t seem to be in a recession just yet. So it’s too early to call this a crisis, even if it is the seedling of something worse.

Corrections don’t last forever.

In fact, many of them disappear quicker than you think.

Since 1950, the S&P 500 has taken an average of 3.5 months to recover its losses after corrections, and no recovery has taken longer than nine months. In other words, you generally haven’t had to wait more than a year to make your money back from a correction.

While history isn’t gospel, there is a logical explanation here. Stocks tend to bounce back quickly because people eventually realize that the trajectory for the economy and corporate profits hasn’t been significantly harmed.

This is the trajectory we’re on until proven otherwise. And if the economy stays solid – from corporate America’s ability to adjust quickly to obstacles, or because Americans are financially well-positioned from a few years of strong employment and wage gains – then stock prices may be back on track sooner than you think.

By the way, you can use this knowledge to your advantage. Historically, the best move is to confidently buy during stock-market drops.

Cycles of fear and relief are the heartbeat of the stock market. You can’t sum them up with just one label.

Feel what you need to feel, but don’t let panic take over just yet.

Thanks for reading!

Callie

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