Weekend Read - Understanding Stock Market Corrections
03/26/2025I take pride in personally crafting each of these emails. Unlike many others in the industry who rely on prewritten content, I write these myself from scratch. My goal is to boil down complex concepts and share relevant news in an easy-to-understand format. I hope you find them both informative and enjoyable.
Lately, markets have been choppy, and headlines may have you wondering how long this will last. What we’re seeing now is what’s known as a market correction, a term that sounds alarming but is actually a normal part of market cycles. Let’s take a step back and put it into perspective.
What is a Market Correction?
A correction is when a major stock index, like the S&P 500 or NASDAQ, declines 10% or more from its recent high1. While this can feel unsettling, history tells us that corrections happen fairly regularly. Since 1980, the S&P500 has experienced a decline of over 10% almost every year on average2.
What Typically Follows a Correction?
Historically, the months following a correction tend to be strong periods for stocks. The S&P 500 has suffered nine other corrections in the last 15 years, and the index returned an average of 18% during the following 12 months3. While there’s no guarantee, markets usually recover given enough time, and those who stay the course tend to benefit. Reacting emotionally by selling after a drop often locks in losses, while staying invested, or even rebalancing, can position you to capture gains when the market rebounds.
The Current Economic Picture is Still Healthy
Unlike 2008, when systemic issues in the banking system led to a full-blown financial crisis, it doesn’t appear to me, that today’s correction is driven by underlying financial instability. Key economic indicators like employment, corporate earnings, consumer spending, GDP and employment, remain in good shape(bea.gov, bls.gov). Inflation has cooled from its highs, and the Federal Reserve is expected to continue lowering rates in the coming months (bls.gov).
Tariffs and How Things Could Go Wrong
One factor that could shape market direction in the coming months is the impact of tariffs on economic growth, inflation, and employment. Right now, it’s too early to say exactly how this will play out, but let’s walk through a hypothetical worst-case scenario to understand what could happen if things go poorly so you can see what many are so scared about.
Higher Tariffs Lead to Increased Costs for Businesses
If tariffs are increased on key imports, whether on raw materials like steel and aluminum or on consumer goods like electronics and appliances, businesses will face higher costs. Some companies may try to absorb these costs, but many will pass them on to consumers in the form of higher prices.
Inflation Begins to Rise Again
If tariffs increase prices across a broad range of goods, we could see inflation begin to accelerate. The Federal Reserve has spent the last two years bringing inflation under control, but if tariffs reverse this trend, it could force the Fed to pause interest rate cuts, something markets would not react well to.
Consumers Cut Back on Spending
As everyday goods and services become more expensive, consumers could start to cut back on discretionary spending. That means fewer vacations, less dining out, and lower demand for non-essential purchases. Given that consumer spending makes up about 70% of U.S. GDP4, a slowdown in spending would begin to weigh on overall economic growth.
Corporate Earnings Decline, Leading to Job Cuts
In my view, if businesses are hit with both higher costs due to tariffs and weaker sales from reduced consumer spending, corporate profits will likely suffer. To protect their bottom line, companies might respond by cutting jobs or freezing hiring. This could drive up unemployment, which in turn would further dampen consumer spending, creating a feedback loop that risks nudging the economy toward a mild recession.
Stock Market Weakness and Recessionary Fears
As investors begin to see slower growth, rising unemployment, and persistent inflation, confidence in the market could deteriorate further. The market might experience additional corrections or even a prolonged downturn. If corporate earnings continue to weaken and consumer confidence falls, a full-fledged recession could become more likely, particularly if the Fed is unable to lower rates due to renewed inflation concerns.
How Likely Is This Scenario?
This is just one hypothetical chain of events, and at this point, I don’t see strong signs of it unfolding. The economy remains healthy, with strong employment numbers, solid corporate earnings, and inflation that is trending downward.
However, tariffs introduce uncertainty, and markets don’t like uncertainty. We’ll be watching closely to see how businesses and consumers respond. Our first set of economic data to evaluate the impact will be in April when we see what happened in March since that’s the first month where the Tariffs have actually been in effect. For now, I don’t believe we’re heading into a crisis. Instead, I see this as a normal market event that may create opportunities to rebalance portfolios and take advantage of market dislocations. But as always, I’ll be keeping an eye on the data and adjusting accordingly.
What Should You Do?
Corrections can be uncomfortable, but they also create opportunities. Instead of reacting with fear, this is a great time to rebalance your portfolio, taking advantage of market dislocations to ensure your investments remain aligned with your long-term strategy.
If you’ve only recently joined my email list, you’ve missed out on many insights and updates that I've been sharing each week. Be sure to visit my blog to explore past content that you might find valuable.
Enjoy your weekend,
Jeremy Raffer, MBA
Director & Wealth Manager
Author Financial Planning for Widows
m. 201-747-2705
w. rafferwealthmanagement.com
e. [email protected]
Steward Partners
115 W. Century Rd, Suite 145
Paramus, NJ 07652
1http://investopedia.com/terms/c/correction.aspBottom of Form
2https://www.fidelity.com/learning-center/trading-investing/corrections
3https://www.fool.com/investing/2025/03/14/sp-500-correction-stock-market-will-do-this-next/
4 https://www.ceicdata.com/en/indicator/united-states/private-consumption--of-nominal-gdp
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
Rebalancing does not protect against a loss in declining financial markets. There may be a potential tax implication with a rebalancing strategy. Investors should consult with their tax advisor before implementing such a strategy.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
For index definitions click here
AdTrax 7755678.1 Exp 3/26
Lately, markets have been choppy, and headlines may have you wondering how long this will last. What we’re seeing now is what’s known as a market correction, a term that sounds alarming but is actually a normal part of market cycles. Let’s take a step back and put it into perspective.
What is a Market Correction?
A correction is when a major stock index, like the S&P 500 or NASDAQ, declines 10% or more from its recent high1. While this can feel unsettling, history tells us that corrections happen fairly regularly. Since 1980, the S&P500 has experienced a decline of over 10% almost every year on average2.
What Typically Follows a Correction?
Historically, the months following a correction tend to be strong periods for stocks. The S&P 500 has suffered nine other corrections in the last 15 years, and the index returned an average of 18% during the following 12 months3. While there’s no guarantee, markets usually recover given enough time, and those who stay the course tend to benefit. Reacting emotionally by selling after a drop often locks in losses, while staying invested, or even rebalancing, can position you to capture gains when the market rebounds.
The Current Economic Picture is Still Healthy
Unlike 2008, when systemic issues in the banking system led to a full-blown financial crisis, it doesn’t appear to me, that today’s correction is driven by underlying financial instability. Key economic indicators like employment, corporate earnings, consumer spending, GDP and employment, remain in good shape(bea.gov, bls.gov). Inflation has cooled from its highs, and the Federal Reserve is expected to continue lowering rates in the coming months (bls.gov).
Tariffs and How Things Could Go Wrong
One factor that could shape market direction in the coming months is the impact of tariffs on economic growth, inflation, and employment. Right now, it’s too early to say exactly how this will play out, but let’s walk through a hypothetical worst-case scenario to understand what could happen if things go poorly so you can see what many are so scared about.
Higher Tariffs Lead to Increased Costs for Businesses
If tariffs are increased on key imports, whether on raw materials like steel and aluminum or on consumer goods like electronics and appliances, businesses will face higher costs. Some companies may try to absorb these costs, but many will pass them on to consumers in the form of higher prices.
Inflation Begins to Rise Again
If tariffs increase prices across a broad range of goods, we could see inflation begin to accelerate. The Federal Reserve has spent the last two years bringing inflation under control, but if tariffs reverse this trend, it could force the Fed to pause interest rate cuts, something markets would not react well to.
Consumers Cut Back on Spending
As everyday goods and services become more expensive, consumers could start to cut back on discretionary spending. That means fewer vacations, less dining out, and lower demand for non-essential purchases. Given that consumer spending makes up about 70% of U.S. GDP4, a slowdown in spending would begin to weigh on overall economic growth.
Corporate Earnings Decline, Leading to Job Cuts
In my view, if businesses are hit with both higher costs due to tariffs and weaker sales from reduced consumer spending, corporate profits will likely suffer. To protect their bottom line, companies might respond by cutting jobs or freezing hiring. This could drive up unemployment, which in turn would further dampen consumer spending, creating a feedback loop that risks nudging the economy toward a mild recession.
Stock Market Weakness and Recessionary Fears
As investors begin to see slower growth, rising unemployment, and persistent inflation, confidence in the market could deteriorate further. The market might experience additional corrections or even a prolonged downturn. If corporate earnings continue to weaken and consumer confidence falls, a full-fledged recession could become more likely, particularly if the Fed is unable to lower rates due to renewed inflation concerns.
How Likely Is This Scenario?
This is just one hypothetical chain of events, and at this point, I don’t see strong signs of it unfolding. The economy remains healthy, with strong employment numbers, solid corporate earnings, and inflation that is trending downward.
However, tariffs introduce uncertainty, and markets don’t like uncertainty. We’ll be watching closely to see how businesses and consumers respond. Our first set of economic data to evaluate the impact will be in April when we see what happened in March since that’s the first month where the Tariffs have actually been in effect. For now, I don’t believe we’re heading into a crisis. Instead, I see this as a normal market event that may create opportunities to rebalance portfolios and take advantage of market dislocations. But as always, I’ll be keeping an eye on the data and adjusting accordingly.
What Should You Do?
Corrections can be uncomfortable, but they also create opportunities. Instead of reacting with fear, this is a great time to rebalance your portfolio, taking advantage of market dislocations to ensure your investments remain aligned with your long-term strategy.
If you’ve only recently joined my email list, you’ve missed out on many insights and updates that I've been sharing each week. Be sure to visit my blog to explore past content that you might find valuable.
Enjoy your weekend,
Jeremy Raffer, MBA
Director & Wealth Manager
Author Financial Planning for Widows
m. 201-747-2705
w. rafferwealthmanagement.com
e. [email protected]
Steward Partners
115 W. Century Rd, Suite 145
Paramus, NJ 07652
1http://investopedia.com/terms/c/correction.aspBottom of Form
2https://www.fidelity.com/learning-center/trading-investing/corrections
3https://www.fool.com/investing/2025/03/14/sp-500-correction-stock-market-will-do-this-next/
4 https://www.ceicdata.com/en/indicator/united-states/private-consumption--of-nominal-gdp
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
Rebalancing does not protect against a loss in declining financial markets. There may be a potential tax implication with a rebalancing strategy. Investors should consult with their tax advisor before implementing such a strategy.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
For index definitions click here
AdTrax 7755678.1 Exp 3/26