The S&P 500 has corrected, now what? | U.S. equity market commentary 1Q 2025
Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
In plain words
The S&P 500 just dropped 10%, and many people are panicking. This report says don't sell in a panic. Over the past 50 years, there have been 20 such drops, and most didn't turn into full-blown bear markets. The once-hot 'Magnificent Seven' stocks (Apple, Nvidia, etc.) have actually been falling since last July, showing that popular investments often become overpriced. Instead of selling, you should rebalance—sell some winners and buy more of the losers. Ignore political noise. Worth reading because it uses history to stay calm.
Oakmark Q1 2025 Report Focuses on Market Response After S&P 500 Correction Core View: Short-term volatility triggered by political events (such as "Liberation Day" tariffs) should not alter long-term investment discipline. The report notes that in Q1, the "Magnificent Seven" (Alphabet, Amazon, Apple
Theme and Background
This chapter discusses market response strategies after the S&P 500 experienced a 10% technical correction in the first quarter of 2025. The report was written on March 31, but it adds that after the "Liberation Day" tariff announcement, the S&P 500 plunged nearly 11% in two days. The author argues that short-term volatility triggered by political events should not alter long-term investment discipline, as economic forces are stronger and more enduring than political forces.
Core Thesis
The author's core investment argument is: Do not panic sell after a correction. Over the past 50 years, the S&P 500 has experienced 20 corrections of 10% or more, and the vast majority (14 out of 18) did not evolve into bear markets. The author explicitly opposes market timing and recommends managing risk through rebalancing (reducing positions that have risen too much and increasing those that have fallen too much), rather than panic selling.
Counterintuitive judgments:
- Media warnings at a 10% correction are "belated panic"; at this point, investors should remain calm rather than become more cautious
- The short-term impact of political events (such as tariffs or presidential transitions) on markets should not alter long-term investment discipline
- The "Magnificent Seven" have posted negative average returns since July 2024, confirming the pattern that "hot investments often cease to be great"
Key Arguments and Data
1. Reversal of the Magnificent Seven: Down an average of 16% in the first quarter of 2025, with negative average returns since July 2024 and a 20% decline from the December peak
2. Historical Correction Data: Of the 20 corrections of 10% or more over the past 50 years, only 4 further declined to the 20% bear market threshold (the 2020 pandemic and 2022 inflation were exceptions)
3. Investor Behavioral Loss: Studies such as those by Dalbar show that chasing winners and panic selling costs investors 1–2 percentage points of return annually
4. Post-Correction Performance: In the 18 non-bear market corrections, the average return after one year was positive (see table below for specific data)
S&P 500 Performance After Corrections Over 50 Years (Selected Representative Data)
This table lists 20 corrections of 10% or more in the S&P 500 between 1975 and 2025, showing that in most cases, cumulative total returns were positive after one and three years (e.g., a 33% return three years after the 1975 correction), with only a few instances such as 2000 and 2007 showing negative returns
| Market Peak | Date of 10% Decline | Maximum Decline | 1-Year Return | 3-Year Return |
|---|---|---|---|---|
| 1975/7/15 | 1975/8/14 | -14% | 25% | 33% |
| 1987/8/25 | 1987/10/15 | -33% | -4% | 13% |
| 1998/7/17 | 1998/8/14 | -19% | 27% | 16% |
| 2000/3/24 | 2000/4/14 | -11% | -12% | -32% |
| 2007/10/9 | 2008/1/8 | -55% | -33% | -2% |
| 2020/2/19 | 2020/2/27 | -34% | 30% | 40% |
| 2022/1/3 | 2022/2/22 | -24% | -6% | 46% |
| 2025/2/19 | 2025/3/13 | -10% | n/a | n/a |
Companies/Assets Involved
- Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla): Down an average of 16% in the first quarter of 2025, with negative average returns since July 2024 and a 20% decline from the December peak. The author believes this confirms the pattern that "hot investments cease to be great," implying a bearish stance.
- S&P 500 Index: Fell from its all-time high of 6,144 in February to 5,522 on March 13, a decline of 10%, entering a technical correction. The author views this as a normal market phenomenon that does not constitute systemic risk.
Investment Implications
- Do not panic sell: Historical data shows that the vast majority of 10% corrections do not turn into bear markets; panic selling locks in losses and misses subsequent rebounds
- Adopt a rebalancing strategy: Reduce positions that have risen too much and increase those that have fallen too much; this does not improve returns but reduces risk and avoids the "buy high, sell low" trap
- Ignore political noise: Economic forces are stronger and more enduring than political forces; short-term political events (such as tariffs or presidential transitions) should not alter long-term investment discipline
- Beware of hot investments: When the market is unanimously bullish on a certain asset class (such as the Magnificent Seven), it often signals that its excess returns are nearing an end