What is Market Correction?
A decline of 10% to 20% from a recent market peak.
Formal Definition
A market correction is a decline of at least 10% but less than 20% from a recent high in an index or individual security. Corrections are shorter and shallower than bear markets and are considered a normal, healthy feature of markets that resets overextended valuations. They often occur without a recession.
In Simple Terms
It is a moderate pullback, usually a drop of 10% to 20%, that trims an overheated market. Uncomfortable but common, corrections happen roughly once a year on average and often reverse quickly.
Example
A stock index sliding from 5,000 to 4,400 has fallen 12%, placing it in correction territory but not yet a bear market.