We keep hearing about the words market correction and bear market being used on the stock market news a lot. If you are investing, you should know and understand these financial terms and their differences and not be surprised by them when they actually happen. As you will see below, these events do occur rather frequently.
The more you realize that they are common the better you can be prepared for how you manage your investment and retirement plans. The worst thing in investment can happen due to bad investing decisions out of either fear or greed. And lack of knowledge is usually the main cause of fear.
What is a market correction?
Market correction is defined as drop of 10% from the market peak. On average, corrections last 4 to 5 months and occur as often as every year (8 to 12 months). The market has had 22 corrections since 1945, 10 of the corrections within the last 20 years. The previous correction had ended in December 2018. The stock market loses, on average, 14% in a correction.
What is a bear market?
Bear markets is markets in which the stock or index has fallen more than 20%. On average, bear markets lasted 14 months and took 24 months to recover. There have been 12 bear markets since 1945 / WWII with average decline of more than 30%. The biggest decline was bear market of 2007-2009, which went into a great recession with stock market suffered slightly more than 50% drop.
What is a recession?
A recession is a period of negative economic growth that happened 2 consecutive quarters in a row that last more than 6 months. It goes beyond the financial markets as to effect the economy as a whole visible in GDP, unemployment, industrial production and sales. On average, recessions since WWII have lasted a duration of 10 months.
Market Crash & Bear Markets In The United States Since 2000
- Dot-com bubble (Mar 10th, 2000): Collapse of technology bubble.
- 911 attacks (Sep 11th, 2001): September 11 attacks caused the global stock market to drop sharply.
- Stock market downturn of 2002 (From Mar 2002 with dramatic decline in July and September):
- Bear market of 2007-2009 (Oct 2007 – Mar 2009): DJIA, Nasdaq and S&P 500 all suffered declines of over 50%.
- Financial crisis 0f 2008 (Sep 16th, 2008): Largely due to subprime loans (provisions of loans to people who may have difficulty maintaining repayment schedules.