Warren Buffett Sent Wall Street a $134 Billion Warning Before the Stock Market Correction. History Says This Will Happen Next.

The S&P 500 (SNPINDEX: ^GSPC), commonly regarded as the best barometer for the overall U.S. stock market, has declined 12% since hitting a record high in February. That puts the benchmark index in correction territory. And while Warren Buffett admits he cannot predict short-term market movements, he did send investors a $134 billion warning mere months before the crash.

Here's what investors should know.

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Warren Buffett sounded a $134 billion warning ahead of the stock market correction

Warren Buffett is one of the greatest investors in American history. Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has evolved from a small textile mill into a trillion-dollar company since he took control six decades ago, in large part because of his knack for purchasing quality businesses and stocks at reasonable prices.

Berkshire stock has returned 20% annually under Buffett, such that the company has grown twice as fast as the S&P 500. Awed by that outperformance, many investors track the stocks Buffett trades by reviewing Berkshire's quarterly Forms 13F and annual Forms 10-K. But rather than compelling ideas, investors found a warning in the company's latest annual filing.

Specifically, Berkshire's net stock sales totaled a record $134 billion last year. The company also had a record $344 billion in cash and equivalents on its balance sheet at year end. Those numbers indicate that Buffett was leaning away from the stock market at a historic pace despite having plenty of cash.

However, the S&P 500 is now in correction territory, so I would not be surprised if Berkshire is currently a net buyer of stocks. Indeed, Buffett in the past has told investors to lean into sell-offs because "the best chance to deploy capital is when things are going down."

History says the stock market could move much higher in the next year

Buffett wrote an opinion piece for The New York Times as the financial crisis roiled the U.S. stock market in 2008. He famously urged investors to "be greedy when others are fearful," and he warned against market timing strategies.

"I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month or a year from now," Buffett wrote. "What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up."

The S&P 500 has suffered nine market corrections in the last 15 years, two of which became full bear markets. But the benchmark index has historically rebounded quickly after its first close in correction territory, as shown in the chart below.

Data source: YCharts.

Since 2010, the S&P 500 has returned an average of 18% during the 12-month period following its first close in correction territory. We can use that information to make an educated guess about what may happen in the coming months.

Specifically, the S&P 500 on March 13 closed at 5,521, down 10% from the record high it reached on Feb. 19. That was its first close in correction territory during the current drawdown. The index will advance 18% to 6,515 in the next year if its performance aligns with the historical average. That implies 20% upside from its current level of 5,400.

Interestingly, Wall Street also anticipates double-digit gains in the S&P 500 in the remaining months of 2025. The average year-end target for the S&P 500 is 6,100 based on estimates from 17 investment banks and research firms. That forecast implies 13% upside from the current level.

Here is the bottom line: As Buffett explained, no one knows when the current stock market correction will end. But rebounds typically start before economic conditions and investor sentiment improve. Moreover, the S&P 500 has usually recovered rapidly following its first close in correction territory. All that information means patient investors should feel good about buying high-conviction stocks today.

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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.