Market Correction vs. Bear Market: What’s the Difference?

It’s more than just a 10% vs. 20% market downturn

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“Market correction'' and “bear market” are terms used to describe a period of declines in the stock market, but they’re not technically the same. A correction generally is considered to have occured when the market drops at least 10% from its most recent high, while a bear market is when the market has dropped at least 20% within at least two months or more.

Understanding the difference between a market correction and a bear market can help you better assess market trends and anticipate future movements so you can make better investing decisions based on your own risk tolerance and personal investing criteria.

Let’s learn more about the main differences between a market correction and a bear market, including how often they occur and how long they last.

Key Takeaways

  • A correction can refer to a decline in either a market index or an individual asset, while a bear market is used to refer to a broad market index
  • The key difference between a market correction and a bear market is the amount of the decline. 
  • Shorter market corrections also tend to occur more frequently than bear markets.
  • All bear markets begin as market corrections.
  • The way you should respond to a bear market depends on your time horizon, present financial situation, and future financial goals.


What’s the Difference Between a Market Correction and a Bear Market?

One key difference between a market correction and a bear market is the amount of decline stocks experience. These two trends also have different time frames, and tend to occur with different frequencies. A correction can refer to a decline in either a market index or an individual asset, while a bear market is used to refer to a broad market index.

  Market Correction Bear Market
Percent Decline From Most Recent Peak 10% decline  20% decline
Time Frame Any length of time  Usually at least two months 
Frequency More frequently Less frequently
Time to Recover Shorter recovery period Longer recovery period

Percentage Decline

The key difference between a market correction and a bear market is the amount of the decline. 

Note

Generally, market corrections are considered to be at least a 10% decline in a broad market index (or an individual asset) from the most recent peak, but less than a 20% decline. A bear market, on the other hand, is a market decline of at least 20% in a broad market index from the most recent market peak.

Time Frame

Market corrections and bear markets aren’t defined by their time frames, but they do tend to have different time frames as a result of the amount of their declines. As you might expect, market corrections, with only 10% declines, usually have shorter durations than bear markets, which might last years. Each market correction and bear market can have a different time frame.

Frequency

Shorter market corrections also tend to occur more frequently than bear markets. You may see several market corrections within a bull market before the market takes a more substantial downturn into a longer-lasting bear market with steeper declines.

Time to Recover

Naturally, because of its more severe declines and longer duration, a bear market typically takes longer than a market correction to recover to its previous high.

Note

A market correction often recovers within months, while a bear market generally takes much longer, perhaps years. Although, again, the sharpness, duration, and recovery times can vary widely.

Market Correction vs. Bear Market Example

All bear markets begin as market corrections. A market correction becomes a bear market usually when it lasts longer than two months and declines more than 20% from the most recent market high. Bear markets in recent years include the COVID-19 bear market that occurred in March 2020 and the bear market that occurred from 2007 to 2009 following the housing market crisis.

Let’s review an example of trends using a hypothetical scenario from the S&P 500 index.

Market correction: If the S&P 500, a broad market index, was at 4,000 and it declined 100 points, the index would not be in a correction because the decline would only be 2.5%. However, if it continued to decline by another 300 points, it would be considered to be in a correction. That’s because the total decline would be 400 points from its peak of 4,000, or a 10% decline.

Bear market: Using the same example above, if the S&P 500 index continued to decline another 400 points (for a total of 800 points) from its peak of 4,000, then the market would be considered a bear market because its declines would be 20% or more.

How Should You React to a Down Market?

Like with any stock-market trend, you can’t predict exactly when a correction or a bear market will occur. How you respond to a down market will depend on many factors, including your financial situation, time horizon, and investing goals.

Note

However, investors can establish a plan for how they will make adjustments in their portfolio when a correction or a bear market occurs.

Some investors, such as younger investors with higher risk tolerances who are investing for the long term, may want to hold on to their investments and wait out the market downturn. Other investors, such as retirees who want to preserve their capital, may want to have a strategy for selling during downturns, perhaps establishing a stock price at which they will sell.

Other investors might prefer to prepare for market downturns by preparing to buy stocks at lower prices. That way, they can see more significant gains when stocks recover. Always be sure to consult a financial professional when making important decisions on how to invest during down markets.

The Bottom Line

The biggest difference between a market correction and a bear market is the percentage decline from the market peak. Market corrections generally occur more frequently than bear markets, and they typically are shorter in duration, although market corrections and bear markets can vary in duration, frequency, and severity.

Frequently Asked Questions (FAQs)

When was the most recent bear market? Are we in one now?

In April 2022, the NASDAQ entered a bear market and in June the S&P 500 did so, both falling at least 20% from a market high point in January 2022.

How often do market corrections happen?

Though there have only been around 26 bear markets since 1929, market corrections occur much more often, roughly every other year on average.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. U.S. Securities and Exchange Commission. “Bear Market.”

  2. Charles Schwab. “Market Correction: What Does It Mean?

  3. Federal Reserve Bank of St. Louis. "S&P 500."

  4. Federal Reserve Bank of St. Louis. "NASDAQ Composite Index."

  5. Schwab. "Market Corrections Are More Common Than You Might Think."

  6. Hartford Funds. "10 Things You Should Know About Bear Markets."

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