The S&P 500 Just Did Something That's Only Been Witnessed 7 Times in 75 Years -- and It Points to a Very Clear Directional Move for Stocks

The stock market wouldn't be a "market" without the ability for stocks to move in both directions. Although Wall Street has been a wealth-building machine for more than a century, it does humble investors from time to time by reminding them that stocks can go down.

On Feb. 19, the benchmark S&P 500 (SNPINDEX: ^GSPC) achieved its all-time closing high of 6,144.15, while the ageless Dow Jones Industrial Average (DJINDICES: ^DJI) and growth-centric Nasdaq Composite (NASDAQINDEX: ^IXIC) ended the session within a stone's throw of their respective all-time highs, which were both set in December.

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Image source: Getty Images.

But when the closing bell tolled on March 13, it marked a rapid swing lower for all three indexes. In a span of 16 trading sessions, the Dow Jones shed 8.6% of its value, the S&P 500 plunged by 10.1%, and the Nasdaq Composite tumbled by 13.7%. The double-digit percentage declines for the S&P 500 and Nasdaq Composite officially placed both indexes in correction territory.

While stock market corrections are a normal and healthy aspect of the investing cycle, the S&P 500's move lower was rarer than you might realize.

Why are the Dow, S&P 500, and Nasdaq selling off?

Before digging into the specifics of the S&P 500's correction, it's important to understand the factors that propelled the stock market lower in the first place.

Perhaps the most-prevailing concern on Wall Street deals with the uncertainty created by President Donald Trump's tariffs. A tariff is a tax placed on goods being imported or exported.

The goal of Trump's tariff policy is to secure American jobs and make domestically manufactured goods more price-competitive with those being brought in from beyond our borders. Although tariffs would appear to resolve this price discrepancy on paper, things rarely work out as planned.

In addition to retaliatory tariffs making things tougher for domestic manufacturers, a lack of clarity regarding the imposition of tariffs on finished goods versus parts used to manufacture products in the U.S. has the potential to make U.S. goods even pricier. The icing on the proverbial cake is the Trump administration has frequently changed which goods are subject to tariffs, as well as pushed back the dates when these added duties go into effect. Investors love clarity, and they're simply not getting it when it comes to tariff policy.

S&P 500 Shiller CAPE Ratio data by YCharts.

The other core catalyst that's been weighing down equities is the historic priciness of the stock market. Even though value is in the eye of the beholder, the time-tested Shiller price-to-earnings (P/E) Ratio -- this is also known as the cyclically adjusted P/E Ratio (CAPE Ratio) -- demonstrates just how pricey stocks are.

The S&P 500's Shiller P/E Ratio has been back-tested 154 years to January 1871. Over this timeline, its average earnings multiple is 17.22. In December, it peaked at 38.89, which represents its third-highest reading during a continuous bull market spanning 154 years.

There have only been six times in history where the S&P 500's Shiller P/E surpassed 30 for at least two consecutive months, including the current bull market. All five prior occurrences were eventually followed by declines of at least 20% (if not much more) in the Dow Jones Industrial Average, S&P 500, and/or Nasdaq Composite.

In other words, all signs appear to point to the stock market heading lower.

Image source: Getty Images.

Wall Street's benchmark index just made history -- and that's good news for investors

This is a good time to point out that no predictive metric or valuation tool offers a concrete guarantee that the Dow, S&P 500, or Nasdaq Composite will make a directional move, as predicted. But there are a small number of metrics and events that have strongly correlated with directional moves in one or more of Wall Street's major stock indexes.

Between Feb. 19 and March 13, the S&P 500 lost 10.1% of its value. Although corrections have been commonplace over the last 75 years, a decline of at least 10% from an all-time high that's occurred within a one-month time frame is quite rare.

Carson Group's Chief Market Strategist Ryan Detrick took note of this rarity on social media platform X earlier this week.

Based on data from Carson Investment Research, there have been seven instances since 1950 where the S&P 500 hit an all-time high and proceeded to lose at least 10% of its value (i.e., moved into correction territory) in less than a month. This includes the 16 trading sessions it took for the benchmark index to shed 10.1% of its value from Feb. 19 through March 13.

Following the prior six occurrences, the S&P 500 was higher at the three-month and six-month mark 100% of the time. In fact, the average gain six months later after initially dipping into correction territory was a scorching-hot 14.7%!

This was one of the fastest corrections ever.

Here are all the times the S&P 500 went from an ATH to down 10% within a month.

Higher 3 and 6 months later every time doesn't sound like the worst news. pic.twitter.com/y0mzaMhQo2

-- Ryan Detrick, CMT (@RyanDetrick) March 16, 2025

Detrick's data set speaks to the broader theme that stock market cycles aren't linear.

As noted, stock market corrections are perfectly normal. According to data aggregated by Yardeni Research, there have been 40 double-digit percentage corrections (which includes bear markets) for the S&P 500 since the start of 1950 (including the latest 10.1% decline). This works out to a correction occurring, on average, every 1.88 years.

But a separate data set from the analysts at Bespoke Investment Group demonstrates the night-and-day difference between moves higher and lower for this widely followed index.

Bespoke compared the length of every bull and bear market in the S&P 500 dating back to the start of the Great Depression in September 1929. What researchers showed was that S&P 500 bull markets lasted, on average, 3.5 times longer than bear markets -- 1,011 calendar days for bull markets versus 286 calendar days for the average bear market.

The key point being that every stock market correction throughout history has proved to be a surefire buying opportunity for patient investors. Regardless of historic correlations, the Dow Jones, S&P 500, and Nasdaq Composite trend higher over long periods.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.