Corrections vs. Crashes
Points:
Stock market corrections refer to temporary declines in stock prices of at least 10%.
These corrections are a normal part of market cycles and are often driven by factors like investor fear or economic changes.
Corrections don’t necessarily indicate a full-blown market crash and may even present buying opportunities for investors.
It seems like every time the market experiences a prolonged rise, there's speculation about an impending "correction."
A correction typically involves a drop of between 10% and 20% in a major market index.
Corrections vs. Crashes
The key takeaway about market corrections is this:
You won’t know it’s a correction until it’s already over.
By definition, a correction is a decline of less than 20%. During the drop, you can’t be sure if it’s just a correction or if it will escalate into a more severe market crash (usually defined as a drop of more than 20%).
Additionally, it could develop into a bear market, which is a sustained period of decline exceeding 20%.
