Market Correction: What is it?

Over the past few weeks, the stock market has experienced increased volatility, and hus, raising concerns of a market correction. What is a market correction? It is when a the market experiences a decline of 10% or more from recent highs. Although this may seem alarming, corrections help stabalize overheated markets and are a normal part of the market cycle.  

How Do Market Correction Happen? 

Market corrections occur due to many factors, such as:

• Inflation: Rising inflation lead to Federal Reserve rate hikes can drive stock prices lower.

• Economic Uncertainty: When there are concerns of corporate earnings, possible recession or slower economic growth, this can add to market declines.

• Geopolitical Tensions: Trade disputes, policy changes, and global conflicts can lower investor confidence.

Are Corrections a Sign of a Bear Market?

Not necessarily. A market correction is not the same as a bear market, which is a decline of 20% or more from a recent top. Corrections are often short-term and can lead to a period of recovery as markets adjust.

Even though corrections can cause temporary setbacks, they are a normal part of the market’s movement and help prevent unsustainable growth.