A market correction is a rapid change in the
nominal price
In economics, nominal value is measured in terms of money, whereas real value is measured against goods or services. A real value is one which has been adjusted for inflation, enabling comparison of quantities as if the prices of goods had not c ...
of a
commodity
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
, after a
barrier
A barrier or barricade is a physical structure which blocks or impedes something.
Barrier may also refer to:
Places
* Barrier, Kentucky, a community in the United States
* Barrier, Voerendaal, a place in the municipality of Voerendaal, Netherl ...
to
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...
has been removed and the
free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any o ...
establishes a new
equilibrium price
In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the ( equilibrium) values of economic variables will not change. For example, in the st ...
. It may also refer to several of these single-commodity corrections ''en masse'', as a collective effect over several markets concurrently.
Stock market correction
A stock market correction refers to a 10% pullback in the value of a
stock index
In finance, a stock index, or stock market index, is an index that measures a stock market, or a subset of the stock market, that helps investors compare current stock price levels with past prices to calculate market performance.
Two of the pri ...
. Corrections end once stocks attain new highs. Stock market corrections are typically measured retrospectively from recent highs to their lowest closing price. The recovery period can be measured from the lowest closing price to new highs, to recovery.
Gains of 10% from the low is an alternative definition of the exit of a correction.
Declines of 20% or more are classified as a
bear market
A market trend is a perceived tendency of financial markets to move in a particular direction over time. Analysts classify these trends as ''secular'' for long time-frames, ''primary'' for medium time-frames, and ''secondary'' for short time-fram ...
.
See also
*
Market trend
A market trend is a perceived tendency of financial markets to move in a particular direction over time. Analysts classify these trends as ''secular'' for long time-frames, ''primary'' for medium time-frames, and ''secondary'' for short time-fram ...
*
Real estate bubble of 1796–1797
*
Financial Bubble of 1837
*
United States housing market correction
United States housing prices experienced a major market correction after the housing bubble that peaked in early 2006. Prices of real estate then adjusted downwards in late 2006, causing a loss of market liquidity and subprime defaults.
A real ...
*
United States housing bubble
The 2000s United States housing bubble was a real-estate bubble affecting over half of the U.S. states. It was the impetus for the subprime mortgage crisis. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reac ...
References
Financial markets
Financial economics
Investment
Behavioral finance
Capitalism
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