How Far Will The Market Correction Go? | U.S. Bank

Government shutdown risk returned as a potential volatility catalyst as well. Lawmakers concluded a prior shutdown by providing full fiscal-year funding for certain programs, but they funded other agencies only through January 30, 2026, and another partial shutdown began January 31, which took several days to resolve. The prior shutdown already delayed key releases—such as inflation data, retail sales, housing activity and the Bureau of Labor Statistics’ employment report—and the agency announced it will delay its January employment report. Investors instead track high-frequency alternative data to gauge consumer resilience amid gaps in official reporting.

Positioning your portfolio: Diversification, discipline, and interest rate expectations

Fiscal policy has supported investor optimism, even as long-term budget questions remain. Lawmakers passed comprehensive tax and spending legislation last July, extending 2017’s tax cuts, adding other breaks and raising the debt ceiling, and some executives cited these changes as a boost to profit expectations. The Congressional Budget Office forecasts an additional $150 billion in consumer stimulus via tax changes, which should show up as tax refunds arrive in early 2026.

The Fed remains a central variable because rate policy shapes financing conditions and investor sentiment. The Fed cut the federal funds target rate by 1% in late 2024 and by another 0.75% over the three meetings that concluded 2025, bringing the target range to 3.50% to 3.75%. Median Fed projections anticipate another 2026 cut, while investors expect two additional cuts, showing how quickly market pricing can diverge from official guidance. 5

Politics has also intersected with monetary policy in ways markets watch closely. President Donald Trump has publicly expressed frustration with the pace of rate cuts and even suggested firing Fed Chair Jerome Powell, whose term as Chair ends in May. President Trump recently announced Kevin Warsh as a replacement. Warsh has previous experience on the Fed’s Board of Governors and is viewed by many as a credible, pragmatic choice. “The President is saying what every borrower wants to hear: that we want lower interest rates,” says Hainlin. “It’s a collision of two principles.”

In this environment, investors often focus less on predicting the next downdraft and more on building staying power through different market regimes. The core message remains straightforward: stay invested and diversified despite volatility and uncertainty, because significant market swings are not new. For those who held excess cash and missed part of the rally, Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group, emphasizes using a dollar-cost averaging approach over time. “New all-time stock market highs are often followed by more all-time highs,” he points out.

Now is an important time to check in with a wealth planning professional to ensure you are comfortable with your current investments and that your portfolio aligns with your time horizon, risk appetite and long-term financial goals.

Understanding market corrections

What is a market correction?

A market correction usually means prices fall at least 10% from a recent high, with a 20% decline or more often referred to as a bear market. Corrections can apply to broad market indexes like the S&P 500 or individual securities and can unfold quickly or over days, weeks or months. While concerning to investors, corrections are a normal part of market cycles because markets do not move in a straight line, and price “resets” often occur after strong gains or shifting expectations.

How big is a typical market correction?

Intra-year S&P 500 index declines have ranged from 3% to 48% with an average of 14% since 1990. That range and average helps distinguish corrections and bear markets from routine market volatility, such as smaller pullbacks that may not reflect a broader reassessment of growth, inflation or earnings. The average annual S&P return over that same time period is 12%, showing that meaningful drawdowns can occur even in years that ultimately finish higher.

How long do market corrections usually last?

Market corrections can last days, weeks or months, and timelines vary because different catalysts unwind at different speeds. The average correction  (10%-20% decline) lasts 17 days but any single episode can be shorter—or longer—depending on whether the decline reflects temporary sentiment shifts or deeper economic stress. Recoveries also vary because markets often “price in” new information before it appears in lagging economic data, and investor confidence can return gradually as uncertainty clears.

How often do market corrections happen?

Corrections occur often enough that long-term investors generally treat them as part of the market’s regular rhythm rather than as rare events. The S&P 500 has spent 29% of time since 1927 trading 10% or more below a recent high, reinforcing that double-digit pullbacks are not unusual.

How investors approach market corrections

Many investors start by separating time horizons: short-term moves can feel dramatic, while long-term plans often assume periodic drawdowns along the way. Diversification matters because different assets and sectors can respond differently to growth, inflation and interest-rate shifts, which can help reduce reliance on any single market outcome. A common discipline during volatile stretches involves sticking with an investment plan aligned to goals and risk tolerance, and for those adding money over time, dollar-cost averaging can help reduce the pressure to “time” entries perfectly.

FAQs

Can market corrections happen even when the economy is strong?

Yes, stock market corrections can occur even when the economy is strong. Market corrections are often driven by investor sentiment, valuations, or external factors, such as geopolitical conflict or government policies, and do not always reflect the underlying health of the economy. As a result, strong economic indicators do not ensure immunity from market downturns.

How do interest rate changes affect market corrections?

Changing interest rates can influence market corrections by affecting borrowing costs and investor sentiment. When interest rates rise, it typically becomes more expensive to borrow money, which can slow economic activity and lead to declines in stock prices as investors adjust their expectations. Conversely, lower interest rates may stimulate investment and spending, sometimes delaying or softening market corrections.

What typically signals a market pullback or correction?

Typical warning signs leading to a pullback in the stock market include overvalued stock prices, rising interest rates, and increasing economic uncertainty. Additional indicators may be declining corporate earnings, excessive investor optimism, or geopolitical instability.

The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. Diversification and asset allocation do not guarantee returns or protect against losses.

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Disclosures

1. U.S. Bank Asset Management Group Research, Bloomberg, as of February 3, 2026.

2. Yale Budget Lab, “State of U.S. Tariffs,” January 19, 2026.

3. U.S. Bureau of Labor Statistics.

4. Board of Governors of the Federal Reserve System, “Beige Book,” January 2026.

5. CME Group, “FedWatch,” February 3, 2026.

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