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What is a market correction?

Market correction

A market correction takes place when a stock, bond, commodity or index reverses (usually negatively) in movement by at least 10% to adjust for an overevaluation. Market corrections are usually temporary and have shorter durations than a bear market or recession.

Where have you heard about market corrections?

Market corrections regularly take place in the stock market with 10% pullbacks in stock prices usually occurring approximately once a year. Market corrections usually last about three or four months and can be healthy for both investors and the market itself.

What you need to know about market corrections.

Market corrections don't necessarily give accurate indications of how stocks are performing and despite a correction, a stock can remain strong (or the stock could plummet further than the overall market). Market corrections are however an opportunity for value investors to digest recent gains and even pick up stocks at bargain prices. Analysts sometimes try to predict when market corrections are about to happen by comparing market indexes to similar indexes - if one index is under-performing, it may be an indication that the other will follow suit.

Find out more about market corrections.

Explore similar terms by reading our definition of correction notice and technical correction.

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