The S&P 500 index, the most widely watched measure of the U.S. stock market, is now in correction territory. This change in course follows a significant drop in stock prices. On Wednesday, President Trump announced sweeping tariffs of 10% on all U.S. trading partners. He hit them with increased tariffs affecting countries with which the U.S. has a trade deficit. This announcement stoked uncertainty among investors. Consequently, stock prices crashed the following day.
At this writing, the S&P 500 is down over 11% from its all-time high made in February. This year’s drop is the latest installment in the index’s story. Since 1980, the average has gone through 21 corrections of 10% or greater. As analysts point out, the average intra-year drawdown for the S&P 500 during the years with midterm elections has been right around 14%. In contrast, investors are understandably alarmed about the rapid downturn. Or it might presage the beginning of a new bear market, defined as a drop of 20% or more from recent peaks.
Even the bear market from 2007 to 2009, widely considered one of the worst in US history caused the S&P 500 to lose almost incomprehensibly 57%. It fell by over half 53%. This historic drop should be a reminder that the stock market is very volatile. Since 1928, the average bear market has been under 10 months. The good news is that while downturns can be painful, they are eventually a joyous return to being transitory.
The deeper correction we’re experiencing now presents a different set of challenges for all investors trying to sail through these stormy seas. Warren Buffett, a renowned investor, emphasizes the importance of maintaining composure during such times. As he explains, “there’s just no way to know how far stocks can drop, even in a few months.” This sentiment resonates with many who are grappling with the uncertainty brought on by external economic factors and government policies.
Investors are reminded of the wisdom found in Rudyard Kipling’s poem, which speaks to the value of patience and resilience in times of distress:
“If you can keep your head when all about you are losing theirs… If you can wait and not be tired by waiting… If you can think — and not make thoughts your aim… If you can trust yourself when all men doubt you… Yours is the Earth and everything that’s in it.” – Rudyard Kipling
The current economic environment is representative of a heightened fear around trade policy and its long-term effects on the structure of our markets. Trump’s announced tariffs have already started a chain reaction. Today, they are reshaping U.S. markets and global economic relations. Most analysts agree that each of these changes could deepen downward trends in stock prices, particularly if investor confidence remains shaky.
Despite these challenges, Buffett notes that “big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.” This view should keep investors alert but equally optimistic about opportunities that can emerge – even in times of downturns.
With the S&P 500 entering what would officially be a correction, everyone is on edge watching this closely. With our latest example, the beautiful yet dangerous duality of the cyclical nature of markets is on display. It further calls for strategic planning to inform investment priorities.