Financial markets go through cycles of expansion and contraction. Within these movements, two terms are frequently used: correction and bear market. Although both involve price declines, they represent different situations.
Understanding their differences helps provide better context for market movements.
What Is a Correction?
A correction is generally defined as a decline of approximately 10% from recent highs in an index or asset.
Corrections are relatively common and may occur several times within a single economic cycle. They are often interpreted as natural adjustments following periods of growth.
What Is a Bear Market?
A bear market is typically defined as a decline of around 20% or more from recent highs.
These periods may be associated with economic slowdowns, financial crises, or heightened uncertainty. They tend to last longer than corrections and can involve a more prolonged environment of volatility.
Key Differences
Correction | Bear Market |
Approximately 10% decline | Around 20% or more decline |
Often shorter in duration | May last several months or longer |
Considered a market adjustment | Often linked to broader economic cycles |
Conclusion
Both corrections and bear markets are part of the historical behavior of financial markets. Differentiating between them helps contextualize price movements and reinforces the understanding that market cycles include both growth and contraction phases.
Disclaimer
All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results.
The information contained in this document is provided for educational purposes only and should not be considered a recommendation or solicitation to buy or sell any security.
Investors should evaluate their own objectives and risk tolerance before making any investment decisions.
Securities Northbound Securities, LLC Member FINRA/SIPC