What Are Market Declines?
Market declines can feel unsettling, especially when headlines focus on falling stock prices and economic uncertainty. However, pullbacks, corrections, and bear markets are a normal part of long-term investing.
Understanding what these terms mean can help investors maintain perspective and make informed decisions during periods of market volatility.
Pullbacks: The Mildest Market Declines
A pullback is generally considered the mildest type of market decline. It occurs when a stock, index, or broader market falls approximately 5% to 10% from a recent high.
Pullbacks happen regularly and are often viewed as short-term pauses within a longer-term upward trend. While they can feel uncomfortable in the moment, they are a common feature of healthy market cycles.
Key Takeaway
- Market decline of 5% to 10%
- Common occurrence during long-term market growth
- Often temporary in nature
Market Corrections and Market Declines
A market correction occurs when stock prices decline 10% to 20% from a recent peak.
Corrections are more significant than pullbacks and can create concern among investors. However, they are still considered a normal part of investing and have historically occurred on a fairly regular basis.
Key Takeaway
- Market decline of 10% to 20%
- More pronounced than a pullback
- Often driven by economic concerns, earnings expectations, or shifts in investor sentiment
Bear Markets and Market Declines
A bear market is defined as a decline of 20% or more from a market peak.
Bear markets tend to receive the most media attention because they are often associated with economic slowdowns, recessions, or periods of heightened uncertainty. While bear markets can be challenging, they have historically been temporary events within a broader long-term growth cycle.
Key Takeaway
- Market decline of 20% or more
- Less common than pullbacks and corrections
- Historically followed by eventual market recoveries
Understanding Market Declines
| Market Event | Decline From Peak |
|---|---|
| Pullback | 5%–10% |
| Correction | 10%–20% |
| Bear Market | 20%+ |
Why Market Declines Are a Normal Part of Investing
One of the most important things investors can remember is that market volatility is not unusual. Pullbacks, corrections, and even bear markets have occurred throughout history and are part of the investing cycle.
When markets decline, it is natural to question your investment strategy or risk tolerance. However, emotional decisions made during periods of uncertainty can sometimes have long-term consequences.
Historically, markets have experienced periods of decline followed by periods of recovery. Maintaining a disciplined investment approach and focusing on long-term objectives can help investors navigate these inevitable market fluctuations.
How Often Do Bear Markets Occur?
While pullbacks and corrections occur relatively frequently, bear markets are much less common.
According to historical market data, there were only 14 bear markets between April 1942 and April 2025. This perspective can help investors understand that significant market downturns, while impactful, are not everyday occurrences.
The Importance of a Long-Term Investment Strategy
A well-designed financial plan should account for market volatility. Investment strategies are typically built with the understanding that markets will experience periods of growth and decline over time.
Working with a financial professional can help investors:
- Stay focused on long-term goals
- Evaluate risk tolerance appropriately
- Avoid emotional investment decisions
- Make adjustments when circumstances change
- Maintain confidence during periods of market uncertainty
Frequently Asked Questions
Is a market pullback a bad thing?
Not necessarily. Pullbacks are common and often occur during longer-term market advances. They are generally considered a normal part of market behavior.
How much does the market need to fall to be considered a correction?
A correction is typically defined as a decline of 10% to 20% from a recent market high.
What qualifies as a bear market?
A bear market occurs when a market index or asset declines 20% or more from its previous peak.
Should investors change their portfolios during a market decline?
Investment decisions should be based on individual goals, time horizons, and risk tolerance rather than short-term market movements. Investors may benefit from consulting a financial professional before making significant changes.
Final Thoughts
Pullbacks, corrections, and bear markets can be uncomfortable, but they are a normal part of investing. Understanding the differences between these market events and maintaining a long-term perspective can help investors navigate periods of uncertainty with greater confidence.
Sources: The Balance (2025), Investopedia (August 2024), First Trust Portfolios (2025)
Disclosures
Investment Advisory Services offered through FAS Wealth Partners, a Registered Investment Adviser with the U.S. Securities & Exchange Commission. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. FAS Wealth Partners’ articles and associated links offer news, commentary, and generalized research, not personalized investment advice. Nothing in this article should be interpreted to state or imply that past performance is an indication of future performance. All investments involve risk and, unless otherwise stated, are not guaranteed. Securities may be offered through FAS Corp, an SEC registered broker-dealer and member of FINRA. FAS Corp is an affiliate of FAS Wealth Partners.
