Sunday , 14 April 2024

Stock Market Pullbacks, Corrections & Crashes: How Do They Differ?

The nature of stocks, also known as equities, is that they often suffer declines and these market downdrafts – market pullbacks, corrections and crashes – have different characteristics.

@$$4$Here is the difference between a stock market pullback, correction and crash.

Pullbacks

  • A pullback, also known as retracement or consolidation, is a temporary drop in an asset’s long-term uptrend, with drops of from 5% to 10%.
  • They are caused by the basic law of supply and demand.
  • It is very short-term, lasting a month on average and taking another month to retrace the losses.
  • There have been more than 74 market pullbacks since the end of 1945.

Corrections

  • A market correction is a drop between 10% and 20%…
  • They last, on average, from 2 to 4 months.
  • They are frequently accompanied by adverse market conditions.
  • Corrections are often seen as ideal times to buy high-value stocks at discounted prices because, since 1974, the S&P 500 has increased an average of around 8% one month after a market correction bottom and more than 24% one year later,.
  • There have been 28 corrections over the past 50 years and they have all been more than completely erased by a subsequent bull market rally…

Crashes

  • …Crashes are downturns of more than 20% and are almost always the prelude to a recession, and they generally occur at the end of an extended bull market brought about by an unexpected economic event, catastrophe, or crisis that triggers panic.
  • Depending on their severity, crashes can last from 11 to 23 months and take up to a maximum of five years to climb back. The market’s worst crash was in 1929, with the Dow plunging 70% until its July 1932 trough. The damage was bad enough that the Dow took 25 years — until 1954 — to return to its 1929 level.
The above version of the original article by Kevin Mwanza (conversableeconomist.com) was edited [ ] and abridged (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

 

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