A 10% drop in stocks is scary, but isn’t that rare?

NEW YORK (AP) — The U.S. stock market has fallen just 10% from last month’s high, hurt by worries about the economy and a global trade war.

The S&P 500’s fall is so steep that Wall Street has a name for it: a “correction.” Such declines have happened regularly for more than a century, and market experts often see them as potentially healthy bursts of excessive euphoria that could send stock prices too high if left unchecked.

But corrections are scary right now, especially for any new generation of investors who enter the market at a time when it seems like stocks are only going up.

The S&P 500 has posted gains of more than 20% for two years in a row. Such huge gains made the market look too expensive to critics, who pointed out that prices were rising faster than corporate profits.

It’s one thing to calm day traders’ enthusiasm. The bigger fear that always accompanies a correction is that it could be a warning sign of an impending “bear market,” which Wall Street calls a drop of at least 20%.

Here’s a look at what history shows about past corrections and what market watchers expect to see in the future.

The U.S. stock market initially soared after President Donald Trump’s election in November on hopes that he would introduce lower taxes, less regulation of businesses and other policies that would boost corporate profits. All those gains have since disappeared as Wall Street grapples with the potential harms of a Trump administration on the economy.

The president has announced tariffs at a dizzying pace, first slapping them on trading partners, then exempting some, then doing it again. The tariffs could hit any country that trades with the United States, raising prices for American households and businesses at a time when high inflation has proven hard to contain.

Trump himself has acknowledged that his plans could affect the growth of the U.S. economy.

All that uncertainty also complicates things for the Federal Reserve, which cut interest rates after inflation nearly fell to its 2% target. Cutting rates further would help the economy, but it could also put pressure on inflation.

The brunt of this selloff has also hit stocks that critics said looked the most expensive after the AI ​​frenzy. Nvidia, for example, is already down about 14% through 2025 after rising more than 800% through 2023 and 2024.

Most of the other big stocks in the “Magnificent Seven” that have dominated the market recently are also lagging the rest of the S&P 500. Those seven stocks accounted for more than half of the S&P 500’s total returns last year alone.

How often do corrections happen?

On average, every few years. Even during the historic, nearly 11-year bull run for U.S. stocks from March 2009 to February 2020, the S&P 500 stumbled through five corrections, according to CFRA. Concerns about everything from interest rates to trade wars to a European debt crisis caused the pullbacks.

The last U.S. market correction came in 2023, when the S&P 500 fell 10.3% from late July through October. At the time, high Treasury yields undermined stock prices as traders accepted a new normal in which the Fed would keep interest rates high for a while. But stocks would quickly rally as optimism revived that rate cuts were on the horizon.

The last correction to turn into a bear market came in 2022, when the Fed began raising interest rates for the first time to combat the worst inflation in generations. Concerns grew that high interest rates would slow the economy enough to trigger a recession. In the end, that recession never happened.