What Is a Stock Market Correction?

Stocks have tumbled in recent weeks as investors have grappled with President Trump’s back and forth on tariffs as well as concerns about the American economy. On Thursday, the sell-off pushed the S&P 500 stock index into a correction, a Wall Street term for a significant decline from a recent high.

Investors, who previously thought Mr. Trump’s more extreme tariff threats were mostly a negotiating tool, have started to worry that they may have been too blasé about the risks. Uncertainty about which tariffs will ultimately be imposed — and their potential economic effects — has jolted markets around the world.

What constitutes a market correction?

A correction is a drop of 10 percent or more in stocks from their most recent high. Since its Feb. 19 peak, the S&P 500 has fallen 10.1 percent.

The 10 percent trigger for a correction is an arbitrary, round-number threshold. But it serves as a signal that investors have turned pointedly more pessimistic about the market. That is particularly the case for technology stocks, with the tech-heavy Nasdaq composite index down almost 14 percent from its most recent peak, in mid-December.

Are market corrections common?

This is the 13th correction in the S&P 500 since the turn of the century, according to data from Yardeni Research. Of the 12 previous corrections, four turned into bear markets, defined as a more severe decline of at least 20 percent:

Does this mean stocks will continue to fall?

Not necessarily.

Some corrections don’t last very long, like the one in early 2018, which spanned less than two weeks. Others can be more drawn out, generally when they develop into full-fledged bear markets.

That said, one previous bear market, at the start of the pandemic, was severe but relatively short — it erased about 33 percent in value from stocks in just over a month. Less than three months later, stocks had regained their previous peak.