Schwab study finds market corrections occur roughly every two years

A Charles Schwab study published in 2025 identified 27 market corrections between November 1974 and February 2025, a frequency that averages to one correction roughly every other year. The report notes that while these events are common, only six of those occasions resulted in a bear market for the S&P 500, specifically in 1980, 1987, 2000, 2007, 2020, and 2022.

The current bull market is approaching its fourth year, a period that has seen significant gains. Long-term investors with a five- to 10-year horizon are advised to expect a pullback, which may manifest as a correction defined by a drop of at least 10% from a recent peak, or a bear market marked by a decline of at least 20%. The article contrasts these standard resets with the extreme case of the dot-com bubble, where the tech-heavy Nasdaq Composite lost approximately 80% of its value between 2000 and 2002. Many investors have drawn parallels between the current rise of artificial intelligence and the internet boom of the late 1990s.

Market data from Schwab indicates that past bear markets have been significantly shorter than bull markets. Since 1961, bear markets have averaged a 36% loss and lasted 409 days, or about 13 months. In contrast, bull markets have averaged a duration of 1,894 days, or slightly over five years, yielding an average return of 182.5%. This historical pattern suggests that investors who remain invested through bear markets often enter subsequent bull markets that recover and exceed previous losses.

The text argues that periodic resets serve a functional role in maintaining market health. When investor enthusiasm drives stocks or sectors to unjustifiably high valuations, corrections help align prices with fundamentals and remove poor performers. For long-term investors, these dips provide an opportunity to purchase strong companies at more favorable entry points, which can enhance wealth accumulation over time compared to markets where companies consistently trade at premium valuations.

Recent history supports the notion that recovery follows volatility. Since the 2020 pandemic outbreak, the market has experienced two bear markets, yet the S&P 500 has continued to generate substantial gains. The article cautions against attempting to time the market, noting that while history suggests a pullback is due after four years of bull market performance, predicting the exact timing is nearly impossible. Investors are encouraged to stay invested in the broader market and to evaluate individual holdings based on how their investment thesis holds up under tougher economic conditions. Having cash available to buy stocks during a crash is also presented as a potential strategy.