Understanding market volatility

May 12, 2025

Recession? Market correction? Bear market? What to expect.

Worried about your investments? This article will help you understand what market upheavals can be.

What’s the difference between a recession, a market correction, and a bear market? Investors sometimes get the terms mixed up. One has to do with economic growth. The other two are related to stock market performance.

A market correction occurs when a stock market index, such as the S&P/TSX Composite Index, drops by 10% or more from its previous peak. When the decline reaches 20%, it’s called a bear market. If that 20 % decline happens over a very short period, then it is a stock market crash.

A recession occurs when a region's economic growth, measured by gross domestic product (GDP), declines for at least two consecutive quarters. It ends once GDP recovers.

When a recession is prolonged, it’s called a depression. To learn more about the difference between a recession and a depression, read this article.

How do you predict a recession?

It’s impossible to predict a recession with certainty. That’s because the only way to know if a recession or market correction occurs is to look back at past data. But we know that, throughout history, market corrections happen more often than recessions.

Stock markets have had more than 50 declines greater than 10% since 1928.¹ During this period, stock markets in Canada dropped by more than 20% in 11 of those events. The following table shows the causes of these declines, and the rebound that followed:

Recent bear markets with declines of more than 20% in the S&P/TSX Composite Index

Event	Bear Market Period	Decline (From the previous high to the bottom)	Time to Return to the Previous High	Performance in the Year After Hitting the Bottom	Performance During the Stock Market Recovery
Vietnam War	05/1969 - 05/1970	-29%	2 years	25%	68% over 3 years (16%/year)
Oil Embargo	10/1973 - 12/1974	-37%	4 years	14%	182% over 6 years (19%/year)
2nd oil shock and the fight against inflation	11/1980 - 07/1982	-44%	1 year	84%	205% over 5 years (24%/year)
Black Monday October 1987 crash	08/1987 - 10/1987	-31%	2 years	20%	42% over 2 years (18%/year)
Recession and the Gulf War	10/1989 - 10/1990	-25%	3 years	14%	150% over 8 years (13%/year)
Failure of the LTCM hedge fund and the emerging markets crisis	04/1998 - 10/1998	-32%	1 year	32%	113% over 2 years (49%/year)
Dot-com bubble	09/2000 - 10/2002	-50%	3 years	33%	165% over 6 years (19%/year)
Housing bubble and financial crisis	06/2008 - 03/2009	-50%	5 years	58%	89% over 2 years (36%/year)
Sovereign debt crisis (euro area)	04/2011 - 10/2011	-22%	2 years	11%	40% over 3 years (12%/year)
Oil price plunge	09/2014 - 01/2016	-24%	1 year	30%	50% over 4 years (11%/year)
Public health crisis (COVID-19)	02/2020 - 03/2020	-38%	1 year	68%	N/A
Average		-35%	2.3 years	35%	117% over 4 years (21%/year)

Sources: Autorité des marchés financiers, Thomson Reuters

In the early months of 2025, the stock market experienced some turbulences caused by U.S. tariff announcements. On February 19, the S&P 500, a U.S. index, had reached its all-time closing high, marking the peak of a long-running bull market. However, what followed was a swift and severe downturn as it dropped 17.6%. In just two days, the S&P 500 lost 10.5% of its value on April 3 and April 4. It was the fifth largest two-day decline the index had experienced since 1950.²

So why are people talking about a recession?

The two phenomena aren’t always related, even though historically a recession often follows a market correction. Canada has experienced five recessions lasting six months or more since 1970.³

Many investment experts believe a recession may happen in 2025.

The key is – don’t panic

Whether or not Canada is on the verge of a recession, the key for investors is to not panic and to not make hasty decisions. By staying invested in the markets, you are likely to benefit from a rebound that often follows a drop in the markets. In fact, you can perhaps make the most gains on your investments when markets are at their lowest point.

If you’re stressed about negative economic news, it may be a good time to talk to your advisor. Or find an advisor if you don’t already have one. An advisor can help you review your risk tolerance. An advisor can also make sure your investments are diversified so that they increase in value over the long term and help you to reach your financial goals.

Want to learn more about the benefits of staying invested in the markets? Read this article.

What are the benefits of having diversified investments? This article explains.

¹Sources: MSCI Canada Index, FactSet
²Source: Globe & Mail & Bartchart Solutions
³Source: The Canadian Encyclopedia

Information contained in this article is provided for information purposes only. It is not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities. You should always consult your financial advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. disclaims any responsibility for any loss that may arise as a result of the use of the strategies discussed.

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Understanding market volatility

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