- On 13 March the S&P 500 closed more than 10% below its February high.
- Tariff uncertainty and fear of a slowdown weighed on markets; European stock markets held up better.
- Diversification does not prevent falls but can soften them; it is best discussed with an adviser before they arrive.
On 13 March 2025, the S&P 500 index closed more than 10% below its February high, in just a few weeks. Uncertainty over tariffs and fear of an economic slowdown weighed on stock markets, and the mood among investors moved quickly from confidence to caution. Sharp moves tend to come with alarming headlines, but the value of information lies in understanding what has really changed and what has not.
For anyone with savings invested, watching the value of a portfolio fall is uncomfortable, and it is normal for doubts to arise. It is wise, however, to separate emotion from analysis: a fall of this kind is explained by specific factors, has a name in market language and is part, with some regularity, of what happens in stock markets. Understanding this in advance helps to avoid taking definitive decisions on the strength of a passing emotion.
What a correction is
In market language, a correction is when an index falls by 10% or more from its recent high. It is not an exceptional event: it happens with some regularity and does not in itself imply a crisis, although it almost always unsettles those who see the value of their portfolio fall.
Telling a correction from a crisis is important, but not always possible at the time. What can be done is to know your own tolerance for falls: how far you are prepared to see the value of a portfolio decline without having to sell, what the money is needed for and when it will be needed. That answer, which is personal, is what should guide the make-up of the portfolio far more than any forecast about the market.
The United States and Europe
While the United States fell, European stock markets held up better. Each market reflects the make-up of its companies, its growth expectations and its exposure to the risks of the moment, so they do not have to move together all the time.
That divergence is a useful reminder. For years, many investors became used to US markets dominating, and it was easy to forget that there are other regions, other sectors and other rhythms. Portfolios heavily concentrated in a single market feel that market’s movements in full, for better and for worse. Comparing the behaviour of the portfolio with that of different markets, and not only with the one that has risen most, gives a more honest picture of the risk actually being taken.
The value of diversifying
Geographic diversification, forgotten after years of US dominance, was proving its worth again. Spreading wealth across different countries, sectors and asset types does not prevent falls, but it can soften them, and it is a conversation worth having with an adviser before they arrive, not during. Diversification is not insurance against losses, but a way of not depending on a single outcome.
A periodic review helps to check whether the actual distribution of the portfolio follows the agreed plan, or whether recent market behaviour has moved it to where it was not intended. Decisions made under pressure, amid nervousness, are rarely the best; those taken calmly and within a prior framework are. That framework can include a time horizon, a maximum percentage per market and a review calendar, which are decided calmly and applied with discipline. None of this is a recommendation about any particular asset.
Corrections are better weathered when the portfolio was designed with them in mind.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
