The Aftermath of a Correction

Kevin T. Cooper, CFA


Two lessons from history about investing after a storm. 

For many advisors, 2022’s market swings have come with numerous phone calls from concerned clients wondering whether to buy, sell, or hold on for the ride. A look at the market’s performance following the greatest declines since WWII points to a few valuable lessons.

Each table below highlights significant downturns of the S&P 500® Index, along with performance in subsequent time periods following those downturns. Since WWII, there have been nine quarterly declines of more than 15%, including Q2 2022. 

15%+ Quarterly Drops for the S&P 500: Post-WWII
Source: Bespoke Investment Group. Data as of July 29, 2022. *7.6% gain through July (first month of next quarter)
20%+ Two Quarter Drops for the S&P 500: Post-WWII
Source: Bespoke Investment Group. Data as of July 29, 2022. *7.6% gain through July (first month of next quarter)

Lesson #1: Time in the market matters, especially following a correction

The first point the tables make is that some of the strongest-performing markets have taken place in the months following significant downturns. Table 1 shows an average return of 26% in the 12-month period following market declines of greater than 15%. In Table 2, that average increases to 31% following two-quarter corrections of greater than 20%.

While averages can be deceptive, telling only part of the story, these numbers point to a central tenet of financial wisdom: Investors who react emotionally by selling during market downturns and then try to time the upswing oftentimes miss some of the market’s best days. Missing even a few of the best days of performance can dramatically reduce portfolio returns.

The fact is, trying to time the market remains one of the most common ways individual investors lose money. According to research firm Dalbar, the average individual stock market investor earned 10% less than the S&P 500 in 2021 (18.39% vs. 28.71%)—the third-largest underperformance ever observed in the firm’s QAIB study, which began in 1985.1 This is, primarily, due to poor timing decisions made by investors. Dalbar states “…fund investors who remained patient and didn’t focus on short-term market gyrations were significantly more successful than those who let their emotions override a longer-term strategy to build wealth.”2 

Lesson #2: Despite any evidence to the contrary, the stock market is still unpredictable

This point may seem obvious, but it’s a concept that remains critical to grasp. Market patterns are inherently unpredictable and can reverse on a dime. For example, Table 1 shows that the two most recent corrections of the S&P 500 before this year produced radically different results in the subsequent quarter. Following the Dec. ’08 decline of -22.56%, investors would have been down an additional -11.67%, while the -20.00% decline of March ’20 was followed by a 19.95% upswing.  

Also in Table 1, the 12 months of performance following each market decline range from an increase of 53.71% to an almost flat return of 1.00%. Like this summer’s market rally, these upswings after significant market corrections are often unloved, but being invested and participating in them is a significant part of building long-term wealth.  

The long and short of it is that there is no formula for accurately predicting the markets. In addition, the adage “Investing is like a bar of soap; the more you handle your money, the less you have of it” holds some truth. The question of whether to buy, sell, or hold on should be redirected to a client’s long-term financial plan—one that takes into account their personal tolerance for risk and long-term goals. History shows that sticking to a well-structured plan through market swings is an investor’s best bet.  

1 Dalbar, Inc. (2022, March 31). Investors Experience Devastating Investor Performance Gap [Press release].


2 Coleman, Murray. “Dalbar QAIB 2022: Investors are Still Their Own Worst Enemies.” Index Fund Advisors. April, 2022,


Past performance is not a guarantee of future results. The views expressed are not intended as a forecast or guarantee of future results, and are subject to change without notice. Any sectors, industries, or securities discussed should not be perceived as investment recommendations. There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for a long term, especially during periods of downturns in the market.


Diversification does not guarantee a profit or protect from loss in a declining market.


Diversified Portfolio Allocation: Investment Grade Bonds (IG Bonds): 32%, Municipals (Munis): 5%, U.S. High Yield Bonds (US HYB): 5%, U.S. Large Cap Equity: (US LC): 23%, U.S. Small Cap Equity (US SC): 10%, Foreign Developed Equity (For Dev): 10%, International Small Cap (Intl SC): 5%, Emerging Markets (EM): 5%, U.S. Real Estate (REITs): 5%. Alternatives are 5% of this allocation in most other representations of the diversified portfolio on this webpage. However, daily data is not available for the HFRI Index, so it is omitted from this chart.


The indices are unmanaged, are not available for investment, and do not incur expenses.


Basis point is equal to .01%


The S&P 500® Index is a capitalization-weighted index of 500 stocks. The S&P 500 Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.


© Copyright 2022 AMG Funds LLC. All rights reserved.


Kevin T. Cooper, CFA


PUBLISHED: August 26th, 2022
4 Min Read

The latest perspectives from AMG's experts, affiliates & fund managers

More Like This

Explaining the Link Between Inflation and Stock Returns

July 7th, 2022 | by Kevin T. Cooper, CFA

As witnessed by the market’s turbulence so far this year, stock valuations are adjusting to a shifting landscape that includes rising inflation and a much more challenging business environment. The question on every investor’s mind is what to expect over the next several months.

Read Blog

MAAANM Stocks: The Ecstasy, the Agony, and What To Do Next

June 17th, 2022 | by Kevin T. Cooper, CFA

It’s common for individual investors to view the S&P 500 Index as the “total U.S. stock market,” but a look under the hood reveals some interesting observations.

Read Blog

The Role of Bonds in 2022

August 12th, 2022 | by Kevin T. Cooper, CFA

Bonds have traditionally performed the role of ballast to a portfolio. Do they still? Clients who hold fixed income securities have seen their investments take a substantial hit this year.

Read Blog