how far down will the stock market go

How far down will the stock market go

Opening the question “how far down will the stock market go” is a common starting point for investors trying to plan for risk. In this guide you will get a clear definition of the question, historical context for U.S. equity drawdowns, scenario-based numeric ranges used by major institutions, the economic and market drivers that create downside, the indicators analysts watch, how institutions model selloffs, recent 2025–2026 episode summaries, and practical risk-management considerations. The phrase how far down will the stock market go appears throughout this article to keep the focus on measuring downside magnitude rather than timing.

As of 2025-12-15, according to Business Insider, some strategists warned that a recession could produce a ~20% drop in the S&P 500 under a recession scenario. As of 2025-12-xx, Vanguard’s 2026 outlook emphasized upside economic outcomes but noted meaningful stock-market downside risk in recession-weighted forecasts. As of 2025-12-20, Barron’s reported a roughly 10% chance among some analysts of a 30%+ crash in 2026. As of 2025-12-10, J.P. Morgan published probability-weighted macro scenarios for 2026 that included a non-trivial recession possibility. As of 2025-04-01, Goldman Sachs published research on bear-market anatomy and average drawdowns. These firm-level views illustrate how practitioners quantify answers to how far down will the stock market go.

Historical context of market declines

When investors ask how far down will the stock market go they are implicitly comparing present risk to past behavior. Historical U.S. equity drawdowns offer a baseline: corrections (10% declines) are common and recur within years, while full bear markets (20%+) have historically occurred less frequently but vary widely in depth and duration.

Typical magnitudes and durations

• Corrections (declines of 10% or more) occur regularly. Historically the S&P 500 has seen multiple 10%+ corrections within a decade.
• Bear markets (declines ≥20%) have varied: many cyclical bears average around the high‑20% to low‑30% range. Goldman Sachs’ 2025 review identifies cyclical bear-market averages near ~30% depth in many historical cycles.
• Median durations differ: shallow corrections often resolve in a few weeks to a few months; deeper cyclical bears that accompany recessions can last many months to over a year before meaningful recovery.

Goldman Sachs’ research provides a taxonomy and averages for bear-market magnitude and recovery shape; analysts use these historical norms when constructing scenario ranges for how far down will the stock market go.

Patterns of bear-market recovery

Bear markets recover in different shapes. The most commonly observed shapes are:

• V-shaped: sharp decline followed by relatively quick recovery when the shock is transitory and policy eases support a rebound.
• U-shaped: longer bottoming process with gradual recovery as fundamentals reset.
• W/double-bottom: recovery attempt fails and leads to a second leg down before recovery.
• Multi-year drawn‑out recovery: when structural damage to earnings or credit requires extended time to repair.

The speed of recovery depends on earnings resilience, central-bank policy, fiscal responses, credit availability, and valuation re-rating. Historical examples show that when policy responds decisively and earnings stabilize, recoveries are faster; when credit stress spreads, recoveries lengthen.

Types of downside scenarios and illustrative numerical ranges

Answering how far down will the stock market go requires scenario buckets — analysts often speak in ranges rather than single-point forecasts. Typical buckets used by strategists include:

• Mild correction: 10–15% down from recent highs.
• Moderate correction / pullback: 10–20%.
• Cyclical bear (recession-linked): ~20–35% (Goldman Sachs and other firms use this range for many cyclical bears).
• Structural or bubble collapse: 30%+ sustained declines if fundamental de‑rating or solvency losses occur.
• Tail-crash: 30–50%+ in low‑probability, high‑impact events.

These ranges are illustrative. Specific probabilities differ across firms and evolve with data.

Base case

Many strategists’ base cases assume no immediate recession and therefore only modest downside. As of late 2025, several large houses were running base-case scenarios with either limited drawdowns or modest gains for 2026 if growth and corporate earnings held up; these views produce relatively low estimates for how far down will the stock market go under the base case.

Bear / recession case

When analysts explicitly tie downside to a recession, numbers rise. As of 2025-12-15, according to Business Insider summarizing a Stifel note, a swift recession scenario could produce roughly a 20% decline in the S&P 500. J.P. Morgan’s 2026 market outlook used probability-weighted recession scenarios that increased expected downside when recession probabilities rose.

Tail risk / low-probability severe crash

Barron’s summarized a set of views that placed a non-zero tail probability on a 30%+ crash in 2026; Barron’s characterized this as roughly a 10% chance in one quoted piece (as of late 2025). Tail risks are often estimated from option markets, CDS pricing, and scenario mapping and are intentionally low-probability but high-impact by construction.

Key drivers that push markets lower

Major drivers that can determine how far down will the stock market go include macro and market-specific catalysts. Analysts focus on: recession risk and rising unemployment, contracting corporate earnings, higher-for-longer interest rates, central bank policy shifts, compressed risk premia and high valuations, widening credit spreads, trade or tariff shocks, geopolitical shocks (market-impacting events, not political polemics), and speculative manias or bubble unwinds.

Valuation and positioning

High valuations (e.g., elevated P/E ratios) and crowded long positioning amplify downside: when many participants hold similar long bets, forced selling or repricing can cascade. Stifel and Goldman research highlights that compressed equity risk premia and elevated multiples leave less room for earnings disappointments, raising how far down will the stock market go if earnings are cut or discount rates rise.

Policy and macro shocks

Fed decisions and unexpected inflation or disinflation surprises matter intensely. A rapid policy‑rate surprise, tighter financial conditions, or deterioration in credit markets can turn a small correction into a deeper bear. U.S. Bank and J.P. Morgan note that combinations of policy tightening and weakening growth are typical triggers for recession‑linked bears.

Indicators and metrics used to estimate potential downside

Analysts and risk teams use a blend of macro variables, market signals, and positioning metrics to estimate how far down will the stock market go. Key indicators include:

• Labor data: unemployment rate and payrolls, as sustained rises in unemployment point toward recession risk.
• GDP and recession models: printed growth and nowcasts; probability outputs from recession models.
• Earnings revisions: aggregate analyst earnings downward revisions often lead price adjustments.
• Valuation metrics: market P/E, cyclically adjusted P/E (CAPE), and equity risk premium (ERP).
• Credit spreads: corporate bond spreads and high-yield spreads widen with higher downside risk.
• Market breadth: number of advancing vs. declining issues; narrowing breadth can signal vulnerability.
• Volatility indices: VIX level and term structure; steep term structure or high risk‑neutral kurtosis indicates elevated tail risk.
• Flows: ETF and mutual fund flows into/away from equities as a sentiment/positioning measure.
• Margin debt and crowded positions: high margin debt can accelerate declines as deleveraging forces selling.

Market-implied signals

Option markets and credit default swaps (CDS) convey market-implied tail risk. A steep skew, elevated implied vols in single-stock or index options, and CDS spread jumps are quantitative signals used to estimate the probability and potential magnitude of large moves.

Macro model outputs and probability estimates

Firms like J.P. Morgan, Stifel, Vanguard, and others combine macro scenario trees with market models to produce probability-weighted downside estimates. These outputs are not single forecasts but distributions; the left tail size and its assigned probability determine numeric answers to how far down will the stock market go.

How major selloffs are modeled by institutions

Institutions model downside using several complementary methods:

• Scenario analysis: define macro paths (base, growth, recession, shock) and map to earnings and multiple outcomes.
• Historical analogs: map present conditions to past cycles to estimate likely depths and recovery durations.
• Valuation-based models: stress-testing multiples and earnings under different discount-rate paths.
• Macro stress tests: assess credit and liquidity channels to test for contagion and systemic amplification.

Scenario-weighted return forecasts

A common output is a scenario-weighted forecast: the base case may assume mild downside or gains, but when a recession scenario is assigned a non-trivial weight (e.g., 25–40%), the expected return and downside tail both worsen. J.P. Morgan’s 2026 outlook is an example where probability distributions meaningfully influence how far down will the stock market go in the firm’s central expectation.

Case studies / 2025–2026 context

Recent episodes demonstrate how fast market risk can increase and how institutions articulated downside.

2025 tariff shock and subsequent recovery

In 2025 a tariff-related shock triggered a notable market pullback. The episode showed a relatively rapid initial decline followed by a rebound as policy signals and company-level resilience mitigated longer-term damage. This example illustrates that event-driven drawdowns can be sharp but shallow if earnings are intact and policy responses stabilize liquidity.

2026 outlook snapshots

• As of 2025-12-15, according to Business Insider reporting on a Stifel note, Stifel outlined a scenario where a recession in 2026 could produce roughly a 20% decline in the S&P 500 and emphasized defensive hedge allocations.
• As of 2025-12-xx, Vanguard’s 2026 outlook emphasized economic upside in some scenarios while noting downside in recession-weighted forecasts and advising a balanced approach to asset allocation.
• As of 2025-12-20, Barron’s summarized views that placed a roughly 10% chance on a 30%+ market crash in 2026, highlighting how tail risk estimates can be non-negligible.
• As of 2025-12-10, J.P. Morgan’s 2026 Market Outlook presented probability distributions for growth and recession scenarios and the corresponding market implications.
• As of 2025-04-01, Goldman Sachs’ "Bear Market Anatomy" research provided historical context and average drawdown statistics used by many desks to frame how far down will the stock market go under different stress patterns.

These contemporaneous snapshots show that credible institutions quantify downside using scenario-weighted frameworks; numbers like 20% (recession case) and 30%+ (tail case) recur in late‑2025 commentary. CNBC’s live market updates on 2026-01-13 and 2026-01-14 reported intraday volatility and short-term tech sector weakness that feeds into near-term downside assessments.

Investment and risk-management implications

Knowing how far down will the stock market go informs, but does not determine, investor responses. Below are practical, neutral considerations and common tools used by analysts and managers. This is educational and not investment advice.

Defensive sectors and instruments

When downside risk rises, investors and strategists often highlight defensive sectors and instruments. Typical examples include consumer staples, utilities, and low‑volatility equity strategies, as well as income-oriented or options‑overlay strategies. Some strategists (as reported in late‑2025 briefs) highlighted low-volatility ETFs and managed‑income wrappers as defensive building blocks.

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Asset allocation and long-term positioning

Long-term investors generally use strategic allocation rather than tactical timing. Vanguard’s 2026 guidance emphasized that diversification, rebalancing, and an appropriate long-term portfolio mix (e.g., including bonds) are central to managing downside risk over multi-year horizons.

Hedging tools and strategies

Common hedging approaches include options (puts, collars), inverse ETFs (for short-term tactical use), increased cash allocation, higher-quality fixed income, and dynamic overlay strategies that reduce net equity exposure as conditions worsen. Hedging has costs and trade-offs that must be considered in the context of goals and time horizon.

Limitations and uncertainties in predicting market bottoms

Predicting exact bottoms — both magnitude and timing — is extremely difficult. Key reasons:

• Model risk: different models yield different left-tail sizes.
• Unanticipated shocks: unexpected events can shift outcomes rapidly.
• Feedback loops: market behavior can influence policy and credit conditions, creating non-linear effects.
• Behavioral factors: investor sentiment and flows can accelerate moves.

Because of these limits, analysts use probability ranges and scenario distributions to communicate how far down will the stock market go rather than precise point estimates.

Communicating downside risk — how analysts express and quantify uncertainty

Analysts commonly express downside risk using multiple formats:

• Percentage-drop scenarios (e.g., 10%, 20%, 30%).
• Probability of recession metrics (e.g., a 25%–40% chance of recession in a given year).
• Scenario-weighted return forecasts combining probability and impact.
• Option-implied measures (skew, implied volatility) and credit spreads.

Goldman Sachs, J.P. Morgan, Stifel, Vanguard, and Barron’s examples show that firms combine numerical and qualitative language to convey both the magnitude and the uncertainty around downside outcomes.

Frequently asked questions (FAQ)

Q: Can anyone predict the exact bottom? A: No. Exact timing and magnitude are highly uncertain; professionals provide probability ranges and scenario-based outcomes rather than certain forecasts.

Q: What is a safe level of cash allocation? A: There is no one-size-fits-all number. Cash allocation depends on financial goals, time horizon, liquidity needs, and risk tolerance.

Q: When should I hedge? A: Hedging is a personal choice tied to goals and costs; many use hedging when downside risk rises and potential losses materially affect goals.

Q: Are valuations a reliable timing tool? A: Valuations indicate potential long-term returns and vulnerability to shocks, but they are imperfect short-term timing signals.

See also

• Bear market
• Market correction
• Volatility index (VIX)
• Equity risk premium
• Recession forecasting
• Asset allocation

References / further reading

• As of 2025-12-15, Business Insider: "Brace for a swift 20% drop in the S&P 500 if recession strikes in 2026, Wall Street forecaster says" (reporting on Stifel) — 2025.
• Vanguard, "2026 outlook: Economic upside, stock market downside" — 2025.
• Barron’s, "The Stock Market Has a 10% Chance of a 30% Crash in 2026. Here’s What Could Cause It." — 2025-12.
• J.P. Morgan Global Research, "2026 Market Outlook" — 2025-12.
• Goldman Sachs, "Bear Market Anatomy – the path and shape of the bear market" — 2025-04.
• CNBC, live market updates, 2026-01-13 and 2026-01-14 — market coverage.
• CNN Business, "What to expect from stocks in 2026" — 2026-01.
• U.S. Bank, "Is a Market Correction Coming?" — Jan 2026.
• Morningstar, "5 Stocks to Buy in January 2026" — Jan 2026.
• CNBC analysis pieces on market sentiment and volatility — Jan 2026.

Final notes and next steps

When asking how far down will the stock market go, treat any single number as a scenario rather than a certainty. Use probability-weighted views and monitor the indicators listed above. For investors interested in integrated crypto and cash management or in using exchange-traded hedging tools tied to both traditional and digital assets, explore Bitget’s product suite and Bitget Wallet for custody and on‑chain utility. Learn more aboutBitget features and risk-management tools from the Bitget platform materials.

Disclaimer: This article is educational and informational only. It is not investment advice or a recommendation to buy or sell securities or crypto assets. The numerical scenarios cited reflect institutional commentary from late 2025 and early 2026 and are illustrative: forecasts change as data and events evolve.