History Says a Stock Market Downturn Is Coming, and Investors Should Do This When It Happens

Year to date, the S&P 500 (^GSPC +0.33%) and Nasdaq Composite (^IXIC +0.08%) have advanced 13% and 15%, respectively, despite uncertainty related to inflation, elevated bond yields, and midterm elections.

However, the next stock market downturn is only a matter of time. Navigating corrections, bear markets, and even market crashes is an unavoidable part of stock ownership. But history says the smartest move investors can make when markets tumble is to buy the dip.

Here are the important details.

The S&P 500: Average 12-month return of 18% following its first close in a correction

The S&P 500 includes 500 large U.S. companies that meet certain eligibility requirements, including profitability and a minimum market cap of $22.7 billion. The index is regarded as the best benchmark for the overall domestic market because it covers 80% of U.S. equities by market value.

Since 2010, the S&P 500 has suffered 10 market corrections, two of which became bear markets. That means corrections have occurred once every 19 months, and bear markets have occurred once every eight years. But the S&P 500 has always recovered its losses, and the rebound has typically been swift.

The chart below shows the S&P 500’s one-year return following its first close in correction territory, meaning the first day it closed at least 10% below the last bull market high.

Data source: YCharts.

As shown above, since 2010, the S&P 500 has returned an average of 18% during the one-year period following its first close in market correction territory.

Not shown above, the corrections in 2020 and 2022 eventually turned into bear markets. Following its first close in bear market territory, meaning the day it first closed at least 20% below its record high, the S&P 500 returned an average of 38% during the next year.

Nasdaq Composite: Average 12-month return of 23% following its first close in a correction

The Nasdaq Composite includes more than 3,000 companies (most of which are domestic) listed on the Nasdaq Stock Exchange. The index is commonly viewed as a benchmark for growth stocks because it is heavily weighted toward the technology sector.

Since 2010, the Nasdaq Composite has suffered 14 stock market corrections, four of which became bear markets. That means corrections have occurred once every 14 months, and bear markets have occurred once every two years. But the Nasdaq has always recovered its losses, and the rebound has typically been swift.

The chart below shows the Nasdaq’s one-year return following its first close in correction territory.

Data source: YCharts.

As shown above, since 2010, the Nasdaq Composite has returned an average of 23% over the one-year period following its first close in stock market correction territory.

Not shown above, the corrections in 2018, 2020, 2022, and 2025 eventually became bear markets. Following the first close in bear market territory, the Nasdaq Composite returned an average of 39% over the next year.

Here’s the big picture: Every time the S&P 500 or Nasdaq Composite has fallen into market correction or bear market territory, investors have had a fantastic opportunity to buy stocks and index funds, especially funds that track the S&P 500 and funds that track the Nasdaq. The next downturn is coming — no one knows when, but the event itself is inevitable — and history says the smartest move investors can make is to buy the dip.