Market Correction
What Is a Stock Market Correction?
A market correction is said to have happened when the stock market — as measured by a major index like the S&P 500 — falls in value by somewhere in the range of 10 and 20 percent after an uptrend or period of stability. A decline of north of 20 percent that lasts for a huge period is considered a bear market, which is more extreme than a correction.
Note: Market corrections are in no way related to asset corrections, which happen when a single security (e.g., Apple stock or Bitcoin) falls by at least 10 percent independent of the market at large.
What Causes Market Corrections?
At an essential level, stock market corrections happen when there are a larger number of sellers than buyers for most stocks for a critical period of time. Be that as it may, what causes this shift toward higher supply and lower demand in the equity market?
Generally, a shift from hopefulness (or greed, in the event that you like) to fear captivates investors to sell their positions and push their money toward more secure, more stable assets like cash or bonds. This kind of far and wide investor fear can happen when it seems like the economy may be set out toward inconvenience. For example, things like supply chain issues or hikes in the fed funds rate can trigger selloffs.
A major crisis in a specific industry (like the blasting of the dot-com bubble in the mid 2000s or the mortgage-backed security crisis of 2007-08) can likewise cause a ripple effect that can snowball into an expansive correction, a bear market, or even a recession.
Essentially, 10,000 foot view issues like the COVID-19 pandemic or international military pressures can trigger market fear and lead to corrections. Each case is unique, and the reason or reasons for a market correction can generally just be distinguished in hindsight.
How Often Do Market Corrections Occur?
Market corrections aren't like birthday celebrations or solstices — they don't happen at customary intervals, and they can be difficult to foresee.
That being said, per the data in the table below, there were 14 market corrections somewhere in the range of 1990 and 2021, just three of which became sufficiently extreme to be viewed as bear markets. The average interval between corrections was 673 days, however these intervals ran fiercely. The nearest corrections were a simple 49 days separated, while the farthest were an incredible 2,553 days (around 7 years) separated.
A Timeline of U.S. Market Corrections 1990-2020
| Start (Peak) | End (Trough) | Percentage Change in Value | Length (Days) | Days Since Previous Correction |
| 01/02/1990 | 01/30/1990 | -10.2% | 28 | — |
| 07/16/1990 | 10/11/1990 | -19.9% | 87 | 167 |
| 10/07/1997 | 10/27/1997 | -10.8% | 20 | 2,553 |
| 07/17/1998 | 08/31/1992 | -19.3% | 45 | 263 |
| 07/16/1999 | 10/15/1999 | -12.1% | 91 | 319 |
| 03/24/2000 | 10/09/2002 | -49.1% | 929 | 161 |
| 11/27/2002 | 03/11/2003 | -14.7% | 104 | 49 |
| 10/09/2007 | 03/09/2009 | -56.8% | 517 | 1,673 |
| 04/03/2010 | 07/02/2010 | -16.0% | 70 | 410 |
| 04/29/2011 | 10/03/2011 | -19.4% | 157 | 301 |
| 11/03/2015 | 02/11/2016 | -13.3% | 100 | 1,492 |
| 01/26/2018 | 02/08/2018 | -10.2% | 13 | 715 |
| 09/20/2018 | 12/24/2018 | -19.8% | 95 | 224 |
| 02/19/2020 | 03/23/2020 | -33.9% | 33 | 422 |
## How Long Do Market Corrections Last?
Not exclusively can we not anticipate how habitually market corrections could happen; we likewise can't say with any degree of certainty how long they will last.
That being said, per the data in the table over, the average length of market corrections (counting those that transformed into bear markets) somewhere in the range of 1990 and 2021 was 163.5 days (somewhere in the range of 5 and 6 months), however these lengths changed fundamentally. The shortest correction lasted just 13 days, while the longest lasted 929 days (around 2.5 years).
## Will Market Corrections Be Predicted?
As referenced above, market corrections are undeniably challenging to anticipate, however that doesn't stop investors and analysts from endeavoring to do as such. The stock market is incredibly feeling driven, so a couple of talking heads communicating bearish opinions can rapidly lead to a panic among investors.
That being said, for each bearish analyst, there is probably going to be a bullish one who peruses precisely the same tea leaves another way. For the average investor, endeavoring to time corrections, selloffs, or bear markets is generally an exercise in vanity.
As opposed to attempting to make hazardous expectations in view of information, tips, or analysis, most relaxed investors would do well to recall that while the market encounters [volatility](/volatility) and, surprisingly, extended dips, it will in general move up in the longer term. Passive investing strategies like [dollar-cost averaging](/dollarcostaveraging) can assist investors with decreasing the effects of volatility on their portfolios and can be an effective method for cutting out the noise in the market while zeroing in on value and consistent, long-term growth.
## Is It a Good Idea to Buy Stocks During and After a Market Correction?
Corrections can be terrifying, and some less-experienced investors might be enticed to stop placing money into the market (or even remove their money from the market) as prices decline. Except if cash funds are required for an unforeseen emergency, this isn't typically the right move.
Say an investor has a consistent income, and they regularly commit 5 percent of it to investing every month. Were they to sell their holdings during a period of decline, they could lock in their losses, though on the off chance that they kept their money in the market, their holdings would probably return up in value eventually. Likewise, in the event that an investor left their money in the market however stopped investing during a correction, they could pass up on the opportunity to below average cost for their number one holdings.
Once more, dollar-cost averaging can be valuable here. While utilizing this strategy, an investor generally invests a similar amount of money into a stock (or fund) at standard intervals, so when the stock is less expensive, they buy **more of it**, bringing down their average cost. Along these lines, when values rise once more, their [gains](/capitalgain) will be larger than they would had they squeezed stop on investing out of fear.
In short, investors seeking long-term, consistent returns will generally improve by continuing to invest during and following corrections.
## Do Cryptocurrencies Experience Market Corrections?
Indeed, corrections can happen in any financial market. Cryptocurrencies are famously unpredictable — more so than equities generally speaking — so corrections are common events in both individual crypto projects and the crypto market at large.
## How Do Stock Market Corrections Affect Bonds?
Since the bond market will in general be more stable than the stock market, numerous investors move money into bonds during corrections or different periods of high volatility, so when the value of stocks drops out of the blue, the value of bonds frequently goes up.
