<p>It appears like the stock market is only going to go down as 2022 goes on. Investors are therefore unsure as to whether the current state of the market places us in a correction or bear market. Although they are sometimes used interchangeably, the terms "market correction" and "bear market" are not the same in reality. What exactly do these phrases mean and how can we differentiate those? Let's begin immediately with <a href="https://www.builder.news/" alt="Builder News" title="Builder News" target="_blank" rel="" class="">Builder.news</a>.</p><h2>What is a market correction?</h2><p dir="ltr">A market correction is a brief price decline that occurs after a price rise has been too rapid.</p><p dir="ltr">When a market is overbought or overvalued, a market correction occurs, which is characterized by a sudden but brief decrease in price. To put it another way, a "pullback" from recent highs enables the market to absorb gains and reset for a subsequent upward leg.</p><p dir="ltr">In general, a market correction is defined as<strong> a 10% or greater decline in the market following a recent peak</strong>. The 10% threshold, however, is not an absolute requirement. Corrections might range from a 3% drop to a 20% drop. In the cryptocurrency market, 5% to 10% market corrections are more typical.</p><p dir="ltr">As investors get overconfident and drive asset values excessively high, corrections nearly always happen while the economy is expanding. This creates the conditions for a "reversion to the mean" as corrections bring prices back to more reasonable levels.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed19645a1b3c32a8e6023f659fee92.jpg" alt="Market correction" title="Market correction" width="600" height="300" class="lykafe0"></p><h2>What is a bear market?</h2><p dir="ltr">A bear market is characterized by a protracted period of declining prices that is typically accompanied by widespread pessimism.</p><p dir="ltr">In other words, it resembles a market correction but lasts a lot longer. <strong>Prices need to decline by 20% or more from recent highs for a market to be deemed a bear market</strong>. Similar to market corrections, this figure is variable depending on market circumstances.</p><p dir="ltr">Bear markets often develop when there is an economic recession or a stock market crash, as opposed to market corrections, which take place during periods of economic expansion. Any of the same variables that lead to a market correction can also generate a bear market in cryptocurrencies. However, they may also result from other things, including political turmoil or a natural disaster.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed19645a1b43c2a8e6023f659fee92.jpg" alt="Bear market" title="Bear market" width="600" height="300" class="lykafe1">  </p><h2>What’s the difference between a market correction and a bear market?</h2><p dir="ltr">The degree of stock price decrease that occurs during a market correction vs a bear market is one of the main distinctions between the two. Both the time frames and occurrence frequency of these two trends are different. A correction is a decrease in either a market index or a specific asset, whereas a bear market is a decline in a wide market index. Let's take a look at this table for clearance.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed19645a1b48a3a8e6023f659fee92.jpg" alt="Market correction vs Bear market" title="Market correction vs Bear market" width="600" height="380" class="lykafe2"></p><h3>Average Percentage Decline</h3><p dir="ltr">The scale of the loss is the main distinction between a market correction and a bear market.</p><p dir="ltr">Market corrections are typically defined as declines of at least 10% from the most recent peak in a broad market index (or an individual asset), but not more than 20%. On the other hand, a bear market is defined as a market loss of at least 20% from the most recent market peak in a broad market index.</p><p dir="ltr">Let's use a fictitious example from the S&amp;P 500 index.</p><ul><li><p dir="ltr">Market correction: The S&amp;P 500, a broad market index, would not be in a correction if it dropped 100 points from 4,000 to 3,000 because the loss would only be 2.5%. However, it would be regarded as being in a correction if it dropped another 300 points. This is due to the fact that the overall drop would be 400 points from the peak of 4,000 or 10%.</p></li><li><p dir="ltr">Bear market: The market would be regarded as being in a bear market if, using the same example as above, the S&amp;P 500 index dropped another 400 points, for a total of 800 points, from its peak of 4,000. This is because the reductions would be 20% or greater. Recent bear markets include the COVID-19 bear market that started in March 2020 and the bear market that followed the housing market crisis from 2007 to 2009.&nbsp;</p></li></ul><h3>Market Condition</h3><p dir="ltr">Any unfavorable situation that prompts selling can result in corrections. Anything from a fresh Fed statement, and dismal employment data, to higher-than-expected inflation. This correction then will be an act of supporting the market.</p><p dir="ltr">By contrast, a bear market is a downturn that is longer and is caused by a recession - a real contraction in the economy.</p><p dir="ltr">However, if there are more important underlying factors affecting the market, a market correction could develop into a bear market. The Great Recession for example. Over the course of nearly a year, a correction that began in October 2007 became a bear market as concerns about the real estate bubble's long-term economic effects spread into the American stock market.</p><h3>Duration</h3><p dir="ltr">Bear markets and market corrections don't have the same time durations, but their magnitude of drops tends to give them distinct time frames. As one might anticipate, market corrections, which only involve 10% drops, often take less time than bear markets (which can extend for years). Each market reversal and bear market may last for a varied length of time.</p><h3>Frequency</h3><p dir="ltr">Market corrections happen more frequently than bear markets, nearly every year on average, even though there have only been about 26 bear markets since 1929. Before the market enters a more significant slide into a longer-lasting bear market with steeper declines, there may be numerous market corrections while it is still in a bull market.</p><h3>Recovery Time</h3><p dir="ltr">Markets often bounce back from corrections within a couple of months, which is faster than average in terms of recovery time. Bear markets, however, have a stronger negative impact on markets because of their lengthier duration and more significant price declines. As a result, recovering from a recent down market could take several months to many years. Again, there can be a huge range in the sharpness, length, and recuperation times.</p><h2>How Should You React When the Market Is Down?</h2><p dir="ltr">You cannot precisely forecast when a correction or a bear market will occur, just like any stock market trend. Your financial circumstances, time perspective, and investment objectives are just a few of the numerous variables that will determine how you react to a down market.</p><p dir="ltr">Investors can, however, develop plans for how they would modify their portfolios in the event of a correction or a bad market.</p><p dir="ltr">Some investors, particularly those who are younger and have higher risk tolerances, and are investing for the long term, may prefer to stick to their investments and ride through the market downturn. Other investors, such as retirees who wish to protect their wealth, might want to have a plan for selling their investments during downturns, possibly deciding on a target stock price.</p><p dir="ltr">Some investors might prefer to stockpile stocks at lower prices in anticipation of market declines. They will be able to benefit more when the stock market recovers in this manner. When deciding how to invest during bear markets, always make sure to seek advice from a financial expert.</p><p dir="ltr"><em><strong>&gt;&gt; Related Article:&nbsp;</strong></em></p><ul><li><p dir="ltr"><a href="https://www.builder.news/earn/8-ways-to-earn-more-with-bitcoin-in-a-bearish-market-qea9I" alt="8 ways to earn more with Bitcoin in a bearish market" title="8 ways to earn more with Bitcoin in a bearish market" target="_blank" rel="" class=""><em><strong><u>8 ways to earn more with Bitcoin in a bearish market</u></strong></em></a></p></li><li><p dir="ltr"><a href="https://www.builder.news/crypto-insights/should-investors-be-afraid-of-or-take-the-chance-of-downtrend" alt="Should investors be afraid of or take the chance of &quot;downtrend&quot;?" title="Should investors be afraid of or take the chance of &quot;downtrend&quot;?" target="_blank" rel="" class=""><em><strong><u>Should investors be afraid of or take the chance of "downtrend"?</u></strong></em></a></p></li></ul><h1>Conclusion</h1><p dir="ltr">The percentage decrease from the market peak is what distinguishes a market correction from a bear market. Although the duration, frequency, and severity of market corrections and bear markets can vary, they normally happen more frequently and last for a shorter period of time.</p><p dir="ltr">Bear markets and corrections might be frightening, but keep in mind that they are common occurrences in a robust economy. You'll be able to traverse them more effectively if you can learn to distinguish between the two.</p><div class="pr-block-special"><strong>Disclaimer:</strong><br>This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div><p><br></p>

Let's explore the key distinctions between a market correction and a bear market, including their frequency and duration.

Distinguish between a bear market and market correction: 5 key takeaways