The U.S. stock market lost nearly $6.6 trillion in two days following President Donald Trump’s decision to levy tariffs on nearly every country in the world.
As markets continue reeling, economic uncertainty rises, and experts warn about a heightened risk of recession, you may have heard the Dow and S&P 500 entered correction territory and the Nasdaq dropped into bear market territory. But what does that mean?
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What is correction territory?
Correction territory is generally understood to mean a stock market indicator has dropped at least 10% from its recent market high. This is different from bear market territory, which refers to a stock market drop of 20% or more from a recent peak, or a closing high.
Every investment is susceptible to corrections. They can apply to individual stocks, bonds, or stock indexes such as the Dow, S&P 500, and Nasdaq.
Several things can prompt a correction including a change in economic policy, newly released jobs or inflation data, and company earnings reports.
How long does a market correction last?
Corrections are fairly common and viewed as a regular part of investing. Markets rise. Markets fall. When an investment enters correction territory, it usually recovers.
The duration of a market correction can vary widely but the average correction has lasted about 115 days, Yardeni Research showed. However, if it slips into a bear market, it typically can last anywhere from a few months to years.
The S&P 500 has entered correction territory 56 times since 1950, according to data compiled by Truist Financial experts.
Of those 56 times, stocks were higher a year later about 88% of the time, the data revealed while noting that past performance does not guarantee future results. In the seven times stocks had declined, six coincided with a recession – showing markets are influenced by the economy's overall trajectory.
Reach Rachel Barber at rbarber@usatoday.com and follow her X @rachelbarber_
This article originally appeared on USA TODAY: What is a stock market correction?