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What Is a Stock Market Correction?
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What Is a Stock Market Correction?
Here's what happens when the market declines, why it does so and how long a drop may last.
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James F. Royal, Ph.D., is a former NerdWallet writer. His work has also been featured in the Washington Post, New York Times and the Associated Press.
James F. Royal, Ph.D., is a former NerdWallet writer. His work has also been featured in the Washington Post, New York Times and the Associated Press. Writer + more + more
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10 years of experience Expertise Stock market Investment management Exchange-traded fundsAnna-Louise is a former investing and retirement writer for NerdWallet. She has been reporting on stocks and the economy for more than a decade. Her writing has appeared in Bloomberg, Fast Company, Crain's Chicago Business and USA Today.
Anna-Louise is a former investing and retirement writer for NerdWallet. She has been reporting on stocks and the economy for more than a decade. Her writing has appeared in Bloomberg, Fast Company, Crain's Chicago Business and USA Today. Writer + more + more
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19 years of experience Expertise Retirement planning investment management investment accountsArielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the "Today" show, NBC News and ABC's "World News Tonight," and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia.
Arielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the "Today" show, NBC News and ABC's "World News Tonight," and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia. Published in Head of Content, Investing & Taxes + more + moreA stock market correction is a fall in value of at least 10% (but less than 20%) from a recent stock market high. People often use the term "correction" describe a drop in the market as a whole or within a specific index, such as the S&P 500. Individual stocks can experience a correction, and usually with much more volatility.
A stock market correction is a fall in value of at least 10% (but less than 20%) from a recent stock market high. People often use the term "correction" describe a drop in the market as a whole or within a specific index, such as the S&P 500 . Individual stocks can experience a correction, and usually with much more volatility.» Worried about the market? A financial advisor can help calm nerves
» Worried about the market? » Worried about the market? A financial advisor can help calm nervesCorrection vs. crash vs. dip vs. bear market
Correction vs. crash vs. dip vs. bear marketA dip is a brief downturn from a sustained longer-term uptrend. For example, the market may go up 5%, linger, and come down 2% over a few days or weeks.
A dip A dip is a brief downturn from a sustained longer-term uptrend. For example, the market may go up 5%, linger, and come down 2% over a few days or weeks.A crash is a sudden and very sharp drop in stock prices, often on a single day or week. Sometimes a market crash foretells economic malaise, such as the 1929 crash when the market lost 48% in less than two months, kicking off the Great Depression
A crash A crash is a sudden and very sharp drop in stock prices, often on a single day or week. Sometimes a market crash foretells economic malaise, such as the 1929 crash when the market lost 48% in less than two months, kicking off the Great Depression Federal Reserve Bank of St. Louis Economic Research division. Stock Market Crash of 1929. Accessed Nov 18, 2025. . But that’s not always the case. In October 1987 stocks plunged 23% in a single day before roaring back over the next year Federal Reserve Bank of St. Louis Economic Research division. Stock Market Crash of 1987. Accessed Nov 18, 2025. . Crashes are rare.A bear market is a long, sustained decline of at least 20% from the market’s most recent high.
A bear market A bear market is a long, sustained decline of at least 20% from the market’s most recent high.» MORE: How the VIX measures market volatility
» MORE: » MORE: » MORE: How the VIX measures market volatilityBrokerage firms
Brokerage firms
Brokerage firmson Charles Schwab's website
on E*TRADE's website
on Vanguard's website
on Fidelity's website
Why stock market corrections happen
Why stock market corrections happenAt the most basic level, market corrections occur because investors are more motivated to sell than to buy.
At the most basic level, market corrections occur because investors are more motivated to sell than to buy.That’s simple supply and demand, but it doesn’t explain why investors are selling.
That’s simple supply and demand, but it doesn’t explain why investors are selling.Investors are a forward-looking bunch. They’re trying to determine whether their investments will appreciate in value. Investors watch for signs, including news, rumors and anything in between, of how the market will move. It moves for many reasons, including because the economy is actually weakening, or based on investors’ perceptions or emotions, such as the fear of loss, for example.
Investors are a forward-looking bunch. They’re trying to determine whether their investments will appreciate in value. Investors watch for signs, including news, rumors and anything in between, of how the market will move. It moves for many reasons, including because the economy is actually weakening, or based on investors’ perceptions or emotions, such as the fear of loss, for example.The reasons for a one-day drop may vary, but a longer-term decline is usually caused by one or several of the following reasons:
The reasons for a one-day drop may vary, but a longer-term decline is usually caused by one or several of the following reasons:A slowing or shrinking economy: This is a fundamental reason for the market to decline. If the economy is slowing or entering a recession, or investors are expecting it to slow, companies will earn less, so investors bid down their stocks.
A slowing or shrinking economy: A slowing or shrinking economy: This is a fundamental reason for the market to decline. If the economy is slowing or entering a recession, or investors are expecting it to slow, companies will earn less, so investors bid down their stocks.Lack of optimism: This refers to the surges of investor emotion and risk-taking during a bull market. As they see the chance for profits, people jump into the market, pushing stock prices up. When that optimism dries up, investors may be inclined to sell.
Lack of optimism: Lack of optimism: This refers to the surges of investor emotion and risk-taking during a bull market. As they see the chance for profits, people jump into the market, pushing stock prices up. When that optimism dries up, investors may be inclined to sell.Fear: If investors think the market is going to fall, they’ll quit buying, and sellers will have to lower their prices to find takers.
Fear: Fear: If investors think the market is going to fall, they’ll quit buying, and sellers will have to lower their prices to find takers.Outside (and outsized) events: This miscellaneous category includes everything else that might spook the market, such as wars, attacks, oil-supply shocks and other events that aren’t purely economic.
Outside (and outsized) events: Outside (and outsized) events: This miscellaneous category includes everything else that might spook the market, such as wars, attacks, oil-supply shocks and other events that aren’t purely economic.These reasons often work together. For example, if the economy is overheating, some investors may see a slowdown in the future and want to sell before a stampede of investors flees the market. So they sell, pushing stocks lower. If the move down persists long enough, investors may become fearful, sending stocks still lower.
These reasons often work together. For example, if the economy is overheating, some investors may see a slowdown in the future and want to sell before a stampede of investors flees the market. So they sell, pushing stocks lower. If the move down persists long enough, investors may become fearful, sending stocks still lower.How long do stock market corrections last?
How long do stock market corrections last?Historically, corrections generally last around four months on average
Historically, corrections generally last around four months on average Morningstar. What We’ve Learned From 150 Years of Stock Market Crashes. Accessed Nov 18, 2025. .Knowing exactly how long a correction will last is a billion-dollar question. If you knew that, you could time the stock market and become rich.
Knowing exactly how long a correction will last is a billion-dollar question. If you knew that, you could time the stock market and become rich.What happens to your portfolio in a correction?
What happens to your portfolio in a correction?The Dow Jones Industrial Average ("the Dow") and the S&P 500 index are the usual benchmarks investors reference when they talk about “the market.” But unless you’re invested exclusively in a broad index fund such as an S&P 500 index fund, your actual returns will differ from the market’s returns.
The Dow Jones Industrial Average ("the Dow") and the S&P 500 index are the usual benchmarks investors reference when they talk about “the market.” But unless you’re invested exclusively in a broad index fund such as an S&P 500 index fund, your actual returns will differ from the market’s returns.It’s important to understand that if a stock’s price declines by 30%, you’ll need an increase of more than 30% to recoup your losses. For example, if your $100 stock declines by 30% to $70, the stock will need to rise nearly 43% from that $70 price to get back to $100.
It’s important to understand that if a stock’s price declines by 30%, you’ll need an increase of more than 30% to recoup your losses. For example, if your $100 stock declines by 30% to $70, the stock will need to rise nearly 43% from that $70 price to get back to $100.What happens to your portfolio during a stock market correction depends on the asset allocation and diversification in your portfolio. Stocks tend to be more volatile than bonds or many other financial instruments the market.
What happens to your portfolio during a stock market correction depends on the asset allocation and diversification in your portfolio. Stocks tend to be more volatile than bonds or many other financial instruments the market.» MORE: How taxes on stocks work
» MORE: How taxes on stocks work » MORE: How taxes on stocks workHow can you prepare for a correction?
How can you prepare for a correction?There isn't a foolproof way to be completely prepared for a stock market correction, but these things can help mitigate the impact of one.
There isn't a foolproof way to be completely prepared for a stock market correction, but these things can help mitigate the impact of one.Diversify your portfolio. Diversification is an investing strategy in which the investor spreads investments across different types of asset classes in order to reduce the risk of loss. Because different asset classes react in different ways to market changes, diversification helps reduce the chance that one market event or one investment’s poor performance will decimate the portfolio.
Diversify your portfolio. Diversify your portfolio. Diversification is an investing strategy in which the investor spreads investments across different types of asset classes in order to reduce the risk of loss. Because different asset classes react in different ways to market changes, diversification helps reduce the chance that one market event or one investment’s poor performance will decimate the portfolio.Know what your long-term investing strategy is. Establishing clear financial goals can help you ride out market volatility and stay clear-headed when everyone else is panicking. A good financial advisor can help you set these goals and be a sounding board when you have the urge to make sudden changes in your porfolio.
Know what your long-term investing strategy is. Know what your long-term investing strategy is. Establishing clear financial goals can help you ride out market volatility and stay clear-headed when everyone else is panicking. A good financial advisor can help you set these goals and be a sounding board when you have the urge to make sudden changes in your porfolio.» MORE: See our picks for the year's best financial advisors
» MORE: See our picks for the year's best financial advisors » MORE: See our picks for the year's best financial advisorsHelpful resources
Helpful resources Best Financial Advisors Find a Financial Advisor Near You | NerdWallet How to Choose a Financial Advisor in 5 Steps 5 Best Wealth Management Services More like this Investment Basics Investing Stocks How Much Does a Financial Advisor Cost? Most financial advisors charge based on how much money they manage for you. Fees are typically 1% a year but can be lower. 2 By Andrea Coombes, Taryn Phaneuf Do You Need a Financial Advisor? 7 Ways to Tell You may need a financial advisor if you're facing big life changes, don't have financial goals, have complex compensation, high tax bills or for other reasons. Taryn Phaneuf How to Find Cheap or Free Financial Advice Quality financial advice is more accessible than ever — and much of it is free or inexpensive. Here's how to get it. June Sham 3 Steps to Prepare for Your First Financial Advisor Meeting Here's what think about and bring to your first meeting with a financial advisor. June Sham