What’s The Difference Between A Stock Market Correction And Crash?

Market falls don’t need to be small, nor are they always large and dramatic — the declines can come in mid-sized increments of between 10% to 20%, and which are also known as corrections. As former Wall Street investment analyst Joseph Houge put it to Forbes: “Say the words market correction and many investors immediately think of a crash or a bear market, with the panic-inducing idea that they’ll be living on Ramen noodles through retirement. [But] In reality, stock market corrections happen relatively frequently, and they aren’t nearly as bad as you might think.”


Market corrections don’t have to be driven by investor anxiety over potential losses; there are a number of real-world reasons why these might take place. Government policy may be shifting to accommodate for economic realities like inflation, which can drive prices higher. Then there is the rise or fall in consumer spending, which is thus far driving the country’s economic growth — because the more people spend, the more companies produce, and the more hiring takes place, according to the U.S. Bureau of Labor Statistics.

As U.S. Bank explains, other factors that can trigger a correction include geopolitical events, like a trade war or Russia’s aggression against Ukraine. In any case, corrections are not usually meant to last long, and after markets fall, they usually start trending higher again, which also says that since 1974, U.S. equities markets have only seen five corrections, which have translated into lingering periods of extended losses, also known as bear markets.