Pullback, Correction, Bear Market, Crash???

Lots of market lingo gets tossed around. Here's my effort to clarify it for you:

A "pullback" is when a securities market declines up to 10% from its recent high-water mark. It may happen in a few days or even a few weeks. It's usually because the market was going up faster/higher than it should, but it usually does not signal any major problems. Long-term and opportunistic investors enjoy a pullback once in a while, as their Buy List securities are effectively "on sale".

A "correction" is when the market experiences an extended pullback, ending up 10% or more below the most recent high-water mark. This is where things get worrisome--perhaps there are real problems and the market is starting to price accordingly.

A "bear market" is much worse. It usually happens when a pullback or a correction turns out to have been due to economic fundamentals instead of just market action. 20% down from the recent high is the threshold. Long-term and opportunistic investors still like bear markets, though, as they feel great bargains are available.

A "crash" is when we speed right through pullback and correction status and into bear market range much faster than usual. A crash can be short-lived, like in the fall of 1987 or the fall of 2008, after which a sharp recovery can take place. A crash also can be the start of a long, drawn-out period of terrible market conditions like during the "Great Depression" of the 1930s.


We are in a correction right now. Many experts predict it's a bear market in the making. Those experts are often wrong, but they are also often right. Sometimes the market does not do what we think it should.