Market correction

Correction is market shorthand for a significant but not catastrophic decline. By the usual convention, a fall of 10% or more from the most recent high counts as a correction, and a fall of 20% or more is labelled a bear market. The word implies that prices had risen too far or too fast and are being corrected back towards more reasonable levels, though that is an interpretation, not a fact. Corrections can be set off by disappointing economic data, rising interest rates, political shocks or simply a change in mood after a strong run.

Corrections are a normal feature of share markets and have historically happened far more often than bear markets; many bull markets contain several. They can feel alarming in real time because nobody knows whether a 10% fall will stop there or deepen. The thresholds are arbitrary, so crossing 10% or 20% says nothing special about the underlying businesses. For long-term investors, corrections are part of the price of earning the higher expected return from shares; for anyone using borrowed money, they can trigger margin calls and forced selling.