U.S. Equity Market Headed Towards Correction
March 11, 2025
By Peter R. Phillips, CFA®, CAIA®
Senior Vice President and Chief Investment Officer
Washington Trust Wealth Management
Investor sentiment has quickly soured leading to a sharp drawdown in equity prices. The S&P 500 Index price has declined 8.6% since its peak on February 19th; only three short weeks agoi. Uncertain and seemingly daily changes to U.S. trade policy with the country’s largest trading partners Mexico, Canada and China has heightened investors’ growth and inflation concerns.
Unfortunately, because of the on and off again nature of trade policy announcements, it is difficult, if not impossible, to estimate the ultimate impact to the U.S. economy. Is this a negotiating tactic, or a real change in long-term U.S. trade policy? Compounding trade policy uncertainty is uncertainty related to tax policy, government spending (DOGEii), regulation and immigration; all of which on an individual basis have the potential to significantly impact the trajectory of the U.S. economy.
That’s a lot of uncertainty, and investors are not big fans of uncertainty.
What we do know is that the U.S. economy entered 2025 with positive economic momentum; and for the most part, major indicators such as employment, income and corporate earnings growth expectations still suggest a healthy economy.
While market drawdowns are not pleasant, putting recent market action in context may help to alleviate some angst. Market drawdowns are not that uncommon and are a natural part of stock market cycles. Market ‘corrections’ (defined as a 10%-20% decline from the recent market peak) occur about once every 2.9 years; with the last correction between August-October 2023. ‘Bear’ markets (defined as a decline of more than 20% from a recent peak) occur about once every 6.7 years. Incorporating both corrections and bear markets (that is, all market drawdowns greater than 10%), the occurrence is about once every two yearsiii.
Further, even with the current decline, the S&P 500 Index price is up 9.6% over the past year, up 33.1% since the end of the last correction (October 23, 2023), up 57.0% since the end of the last bear market (October 12, 2022), and up 150.9% since the COVID low (March 23, 2020). Not too bad.
Market volatility and lower stock prices are hard to ignore and can be stressful, but it is always important to keep focus on long-term investment objectives. And in fact, stock market downturns can offer excellent long-term investment opportunities. Please reach out to your wealth advisory team if you have any concerns regarding the financial markets, economy, or your portfolio.
We will provide more details and analysis of the U.S. economy and financial markets in our upcoming 2Q: 2025 Economic and Financial Market Outlook to be published in late April.
i All S&P 500 Index return calculations from FactSet and based on March 10, 2025 closing price.
ii Department of Government Efficiency
iii All S&P 500 Index drawdown data from Crandall, Pierce & Company.
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