Talk of a sharp stock correction is rising. Here’s how painful it could get.

Talk of potential stock-market correction this year is heating up.

While the S&P 500 is down just 5% from its record high reached on December 6, concerns are brewing that volatility is set to surge this year due to a new President in the White House and historical data that suggests the current rally is getting long in the tooth.

“The S&P 500 can be a victim of its own success. After two strong years in 2023 and 2024, risk increases for an uninspiring 2025,” Stephen Suttmeier, technical strategist at Bank of America, said in a recent note.

Suttmeier highlighted that the average and median return for the S&P 500 during the third year of a new bull market is 5%, well below the average annual return of about 10%.

While the major stock market averages are down just a handful of percentage points from their December highs, the internals show that the stock market has suffered a lot of damage.

“A few technical cracks have recently emerged,” Adan Turnquist, chief technical strategist at LPL Financial, told B-17. “Momentum in stocks has recently stalled as the calendar turned to 2025, while deteriorating breadth measures are flashing potential warning signs for a deeper pullback.”

Six of the eleven stock market sectors are trading above their 200-day moving average, down from all eleven in late December. Another measure of market breadth, the percentage of S&P 500 stocks above their 200-day moving average, also decline sharply over the past month, from about 76% to 55% on Wedensday, according to data from StockCharts.

The 200-day moving average is a closely watched technical indicator that helps identify the long-term direction of a trend. When securities fall below their 200-day moving average, it sends a warning sign to traders that the prior uptrend in a stock price could be on the verge of turning into a down trend.

With concerns growing that the stock market could experience an imminent sell-off, B-17 spoke with three equity strategists to better gauge how painful a potential stock decline could be.

Here’s what they had to say.

13% correction — Fairlead Strategies (Will Tamplin)

Will Tamplin, senior analyst at technical analysis research firm Fairlead Strategies, told B-17 that the S&P 500’s rising 200-day moving average is a logical level of support to watch.

That technical level is at about 5,570. If the S&P 500 tests that level and breaks below it decisively, the next area of support for the index is the 38.2% Fibonacci retracement level at 5,337.

A decline to that level would represent potential downside of 10% from current levels and a peak to trough decline of about 13%.

15% correction — Baird (Ross Mayfield)

Ross Mayfield, investment strategist at Baird, is bullish on the stock market for 2025.

But that bullish view doesn’t negate the view that a stock market correction could be near, Mayfield told B-17, arguing that after a strong two-year rally, a painful decline is overdue.

“We average a correction roughly once every two years, but we rarely see a bear market without an associated recession,” Mayfield said. “Our 2025 base case is for a continued economic expansion (i.e., no recession) and stock market gains across the full year, but a double digit pullback (ala early 2018) would be right in line with historical average and wouldn’t be surprising given the headwinds facing markets and extended valuations.”

Mayfield said a downturn of as much as 15% is feasible in 2025.

16% correction — CFRA Research (Sam Stovall)

“This year has started off on the wrong foot,” Sam Stovall, chief investment strategist at CFRA Research, told B-17.

Stovall observed that the Santa Claus Rally, which occurs during the last five trading days of the old year and the first two of the new, didn’t deliver, which is historically a bad omen for the rest of the year.

“If Santa should fail to call, bears may come to Broad and Wall,” the old Wall Street adage goes.

According to Stovall, a key technical Fibonacci level, 5,130, derived from the start of the current bull market on October 12, 2022, is crucial for investors to watch as support.

A decline to that level would represent a peak-to-trough decline of 16%.

The last time the S&P 500 experienced a decline of 16% or more was in 2022, during a brutal bear market that was sparked by surging bond yields.

With bond markets recently throwing a tantrum as the 10-year US Treasury yield approaches 5%, investors could once again be worried that the money-losing environment of 2022 could return this year.