What is a crash? What is a correction? What is a bear market? Is this Trade War selloff a correction or crash? Some questions we can answer. Some we can only guess at. But the following is a guide to understanding the history and the terminology of market downturns so as to put the current stock market downturn into context.
What is a Correction?
A drop of 10% or more from a previous high is typically referred to as a correction. Corrections are not unusual. Over half of all calendar years since 1980 have suffered a 10% (or worse) market correction and despite this, the S&P 500 has delivered a positive annual return in 75% of all those years. Every major stock market in the world has suffered a 10%+ correction in 2025.
What is a Crash?
A stock market crash has no definitive definition but is generally accepted to be a sudden and dramatic decline of share prices across a broad section of a stock market. The ‘Liberation Day’ rout saw the bellwether S+P 500 fall over 10% in the following two days. Most commentators would and have described this as a market crash, and markets have continued to decline since then as the trade war escalates.
What is a Bear Market?
A bear market is usually defined as a 20%+ downturn in stock prices over at least a two month period. Today, the S+P 500, the closest measure of the generic phrase ‘the stock market’, is very close to bear market territory but unless it stays at or below these levels for two months or more, this will not be recorded as a bear market. Bear markets generally come once every four to five years and usually last around 9 months. There have been 27 (S+P 500) stock market bear markets since 1928 and 28 bull markets – but because bull markets last longer and deliver much larger gains than bear market losses, stocks have risen significantly over the long term.
What is a Recession?
The official definition of a recession is a fall in GDP in two consecutive quarters. Recessions occur around every nine to ten years. The stock market is not the economy but bear markets are associated with recessions (or vice versa) two out of three times. The last, the so called Great Recession, was eleven years ago.
What is this?
We have clearly had a correction and a crash, and a bear market is likely if stock markets stay down for a few more months. A recession obviously depends on Q2 and Q3 GDP data, and it is of course possible that consumer demand is hit hard by the inflationary impact of restricted trade flows. But it is notable that the two big recessions (and bear markets) of the last hundred years have been where the hit to the economy is exacerbated by the failure of the banking system (of which there is no evidence in this crisis).
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