After last Friday’s deeper market down day, where the S&P 500 fell over -1.7%, I decided to fight my emotions, and instead ground (or drown?) myself in historical data. 

And in doing so found myself rewatching a 1994 speech Peter Lynch, renowned fund manager from 1977 to 1990, gave at a National Press Club meeting. In it, he emphasized learning from history, and shared statistics about markets that still hold true today: “the market goes down a lot…and the math is simple”. He went on to say bear markets happen about 1x every 6 years and corrections happen about every 2 years.

And that still holds about true today. Even though the last ten years of the S&P included a liquidity crunch in 2018, a global pandemic in 2020 and the rise of interest rates above 2.5% (in 2022 for the first time in 15 years. The market data showed: 

• In addition, 5% of the ~2500 days were down 1.7% or worse, and just over 1% of the days were worse than -3%, so they are bound to happen

• There were 3 bear markets, defined as -20% or more (referenced above in 2018, 2020 and 2022) → thanks to the pandemic this is higher than previous decades where the average is closer to 2.

• There were 7 market corrections, defined as -10% or more but less than above

• There were 14 market pullbacks, which I defined as -4% or worse but less than above

This means, an investor should expect 1-2 market pullbacks per year. 

The next question is whether Friday was the start of a market pullback, correction, or neither? If history is a guide, then it can be a market pullback. Out of the 122 days where the 1-day market return was -1.7% or worse in the last 10 years, 76% of them occurred during a market correction or pullback, 24% were more one-offs. So while not guaranteed, I lean towards pullback this time around.

The last thing to consider is valuations and expectations. As I talked about in my 2025 outlook, they were both high. And you are seeing that come to light in the reaction to earnings reports. While earnings have shown growth beyond expectations for Q4, guidance has disappointed—meaning the market seems to have been conditioned to expect to see better results than even their own high estimates.

Speaking of which, the big report this week is Nvidia. Consensus expectations for Q4 earnings are $0.85 per share or 64% growth year over year (YOY), while for 2025 they’re $4.44 per share (~50% growth, which is less than the ~130% in 2024). That being said, investors may have come to expect a 3-5% upside surprise on actual earnings, so just meeting these could be a disappointment. The stock currently trades at 28x next 12 months expected earnings, which to be honest, is reasonable relative to the company’s 5 year history—actually just like a pullback is for the market.