Market Correction

What is Market Correction? — Definition

A correction is defined as a drop of at least 10% but less than 20% from a recent high. Below 10% is considered normal volatility; at 20% or more, it becomes a bear market. Corrections happen surprisingly frequently — the S&P 500 experiences a correction roughly once every 1–2 years on average.

Corrections are often triggered by specific events: an inflation surprise, a geopolitical shock, or disappointing earnings season. However, most corrections do not turn into bear markets. Historically, about 75–80% of corrections reverse without crossing the 20% bear market threshold.

Example

In Q4 2018, the S&P 500 fell approximately 19.8% from peak to trough — just barely avoiding the bear market definition. By April 2019, it had fully recovered. Investors who panic-sold in December 2018 locked in losses right before the recovery.

The BMInsider Fear & Greed Index is particularly useful during corrections — it tends to spike into 'Fear' territory, which history shows has been a favorable entry point for long-term investors.