How Often Does the S&P 500 Have a 10% Drop and Still Finish the Year Positive?

The S&P 500 is a cornerstone of the U.S. stock market, tracking 500 of the nation’s largest companies. For investors, it’s a key indicator of economic health—but it’s not without its wild swings.

A common question arises: how often does the S&P 500 experience a 10% drop during the year and still manage to finish with a positive return?

Historical data offers surprising insights into the market’s resilience, revealing patterns that could shape your investment strategy. Let’s dive into the numbers, explore real-world examples, and uncover what drives these recoveries.

Table of contents:

What Is the S&P 500 and Why Does It Matter?

The S&P 500 is a market-capitalization-weighted index that includes giants like Apple, Microsoft, and Amazon. It’s widely regarded as a snapshot of the U.S. economy and a benchmark for investors worldwide.

But here’s the catch: it’s not a straight line upward. Intra-year drops—those temporary declines within a calendar year—are common, and they can test even the steeliest investor’s nerves. Understanding how often these drops lead to positive year-end results can help you confidently navigate market volatility.

How Frequent Are 10% Drops in the S&P 500?

How Often Does the S&P 500 Have a 10% Drop and Still Finish the Year Positive?

Over the past 42 years, the S&P 500 has faced its share of turbulence. Research from JMG Financial Group shows an average intra-year drop of 14%—meaning the index typically falls that much from its peak at some point during the year.

A 10% drop, known as a market correction, is even more routine. Yet, despite these declines, the S&P 500 has finished the year with a positive return in 32 of those 42 years—about 76% of the time. This suggests that significant mid-year drops don’t always spell doom for annual performance.

Here’s more: since 1960, the S&P 500 has had a drawdown of less than 10% only 9 times.

Historical Examples of Drops and Recoveries

To see this resilience in action, let’s look at some standout years:

1987 (Black Monday): On October 19, the S&P 500 crashed over 20% in a single day. Panic ensued, but by year-end, the index still posted a positive return, proving its ability to rebound from even the sharpest declines.
2020 (COVID-19 Pandemic): Early in the year, the index plummeted 34% from its February high as global lockdowns took hold. Yet, fueled by stimulus and optimism, it ended 2020 up over 16%—a remarkable turnaround.

These examples highlight a key trend: big drops don’t always mean a lost year. While not every year with a 10%+ drop recovers (2008, for instance, ended down 38%), the majority do, aligning with that 76% statistic.

Why Does the S&P 500 Recover So Often?

What’s behind this bounce-back power? Several factors come into play:

Market Cycles: Stocks move in waves—corrections are often followed by growth phases.
Earnings Growth: Strong corporate profits can lift stock prices, even after a dip.
Investor Sentiment: Fear fades, and buying resumes as confidence returns.
Policy Support: Central banks, like the Federal Reserve, often step in with measures like rate cuts or stimulus, as seen in 2020.

Together, these forces help the S&P 500 climb out of mid-year holes more often than not, turning temporary setbacks into year-end gains.

What Does This Mean for Investors?

For anyone with money in the market—or considering it—this pattern is a game-changer. A 10% drop might tempt you to sell, but history suggests holding steady could pay off.

That 76% recovery rate over 42 years underscores the value of a long-term perspective. Diversifying your portfolio can also cushion the blow of volatility, letting you ride out the storm.

Of course, past performance isn’t a guarantee—economic shifts or unexpected crises can alter outcomes—but the data leans heavily toward resilience.

The Takeaway: Don’t Fear the Dip

The S&P 500’s track record is clear: a 10% drop—or even more—doesn’t mean the year is lost. Over the past 42 years, it’s finished positive about 76% of the time despite significant intra-year declines.

Years like 1987 and 2020 show how the market can defy the odds, driven by cycles, earnings, sentiment, and policy. So, next time the headlines scream “crash,” take a breath. The numbers say it’s more likely a stumble than a fall.