Stock Market Corrections: Defined

What Are Stock Market Corrections?

By John Bromels – Updated Feb 22, 2025 at 9:16 AM

Key Points

Market corrections, defined as a 10-20% index drop, often present prime buying opportunities.
It's impossible to predict market corrections; historically, they're a normal stock market behavior.
Distinguishing between a market correction and a crash or bear market isn't clear until it's over.

Seems like every time the stock market goes up for any length of time, someone on Wall Street starts forecasting imminent doom. Usually, this involves predicting the dreaded "stock market correction." A stock market correction is a drop of between 10% and 20% in a major market index.

Read on to learn when you can expect a market correction, what they mean for your portfolio, why you shouldn't worry about them, and how to use them to your advantage.

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A line graph showing common patterns of stock market corrections and explaining what happens before, during and after. — Image source: The Motley Fool

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Bear Market

A bear market is typically defined as a 20% drop from recent highs.

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Crises don't always trigger corrections, though. When oil prices collapsed in 2014, the bull market continued unabated. Investor sentiment, economic indicators, global politics, and breaking news all play a role in determining whether and when a correction occurs...or doesn't.

Take, for example, this chart showing the Dow Jones Industrial Average and S&P 500 from May-August 2008:

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This looks like a classic "market correction." Both the Dow and the S&P 500 fell between 10% and 20% (as of mid-July), but the market rebounded a bit immediately afterward and then crept slightly upward.

Unfortunately, here's what happened next:

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Stock market corrections are great times to buy

Far from a time to panic, market corrections usually turn into outstanding buying opportunities, as they are often both brief and mild. All 28 corrections over the past 50 years have been more than completely erased by a subsequent bull market rally.

What's more, the S&P 500 has spent almost three times as many days over the past 50 years rallying compared to the days it's spent in correction. Though there are no guarantees in the stock market, buying an index fund, or a basket of high-quality stocks within a major index like the Dow or S&P 500, during a correction is about as close to a surefire long-term investment strategy as you're going to get.

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About the Author

John Bromels has been a contributing Motley Fool stock market analyst since 2012 covering information technology, communication services, industrials, energy, materials, utilities, and healthcare sectors. He finds investing to be more interesting and profitable than collectible trading card games and is an award-winning puzzle designer.

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