What is the difference between a correction and a bear market?

Traditional wisdom is a correction is a decline of 10% while a bear market is a decline of 20%. But there’s more to it than that. Think of a correction like a cold and a bear market like pneumonia. They’re similar, but one lasts significantly longer than the other.

What is a bear market?

Bear markets are usually defined as stock market declines of at least 20%. They can last any length of time, though they tend to last longer than market corrections. Wall Street considers bear markets over when the stock market closes at a new record high. The start and end of a bear market, however, can only be determined after the fact.

What is a pullback in a bear market?

A pullback is a market drop of 5-10% and is very short term. The market is in "correction phase" after a drop between 10-20% and can last a few months. Bear markets tend to become vicious cycles when rallies are sold and not bought. How does an investor know if the market is in a correction or the start of a bear market?

What is a market correction?

A “correction” refers to a market decline greater than 10% but less than 20%. The 10% threshold is arbitrary, but it represents a significant decline. A correction can last any length of time, from days to months or more.