Key Takeaways
- Corrections, generally defined as drawdowns of 10%, can be healthy. They help reset valuations, temper speculative enthusiasm, and encourage investors to reassess risk.
- The S&P 500 hasn't experienced a traditional correction recently. But the headline index doesn't tell the full story.
- Nearly every S&P 500 stock has experienced a correction in 2026, but the index itself has avoided one.
- This suggests that some of the healthy adjustments typically associated with market corrections may have already taken place beneath the surface, without a broad market selloff.
Corrections Are a Healthy Part of Markets
Market corrections, conventionally defined as declines of 10% or more, are a normal and often constructive part of investing. They help reset excessive valuations, temper speculative enthusiasm, and encourage investors to focus on risk. While corrections can sometimes signal deeper economic problems, they often help markets work through excesses and establish a more sustainable foundation for future returns.
We’re Due for a Correction … Or Are We?
Despite considerable economic and geopolitical uncertainty this year, the S&P 500 has not experienced a 10% correction since April of 2025. But the headline index doesn't necessarily tell the full story.
Our analysis of S&P 500 constituents reveals that 97.6% of S&P 500 companies experienced a decline of at least 10% at some point during 2026, even though the index itself declined only about 9% at its worst. Rather than declining together, individual stocks have experienced weakness at different times, with that weakness offset by strength in other stocks.
What Ten Years of Market Data Tells Us
Our analysis of S&P 500 constituents from 2017 through 2026 reveals that corrections among individual stocks are far more common than corrections in the overall index. However, when stock-level corrections become sufficiently widespread, the broader index typically experiences a correction as well. In each of the five prior years when more than 90% of constituents experienced a decline of at least 10% – 2018, 2020, 2022, 2023, and 2025 – the S&P 500 Index experienced an average drawdown of 21.7%.
2026 is the notable exception. Nearly 98% of constituents have experienced a correction, yet the S&P 500's maximum drawdown has been approximately 9%.
The difference is in the timing of two major market forces this year—the AI investment cycle and rising interest rates. Companies exposed to the AI investment cycle experienced weakness over the summer but have since rebounded, while interest-rate-sensitive stocks performed well during the summer but have struggled more recently. These offsetting patterns have allowed strength in some parts of the market to counterbalance weakness in others.
What This Means for Investors
The absence of an index-level correction does not mean the market has avoided volatility or the process of adjusting to changing fundamentals. Much of that adjustment may already have occurred beneath the surface, as individual companies and sectors experienced substantial declines and recoveries.
Rolling corrections can be less disruptive than broad, synchronized selloffs. They also demonstrate the importance of diversification, as different companies and sectors respond differently to economic conditions, earnings expectations, and investor sentiment.
While rolling corrections do not eliminate the risk of a future market decline, they can have benefits similar to those of traditional corrections: stress-testing valuations, tempering excessive enthusiasm, and encouraging investors to reassess risk.
The takeaway: Corrections are a normal part of investing. While the S&P 500 has avoided a traditional correction this year, nearly all its constituents have experienced one. This suggests that some of the healthy adjustments typically associated with market corrections may have already taken place beneath the surface, without a broad market selloff.
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