Pullback, Correction, Bear Market, Recession — What’s the Difference?

Markets move in waves. Knowing the vocabulary helps you react with discipline instead of fear.

Pullback ≈ 5% Correction ≈ 10% Bear Market ≈ 20% Recession = Broad economic decline

Quick Reference

TermTypical Trigger / MagnitudePlain-English Meaning
Pullback~5% drop from recent highsMinor decline; short-lived dips in an uptrend.
Correction~10% declineNormal reset; often brief.
Bear Market~20% declineProlonged downturn in prices & sentiment.
RecessionBroad, sustained economic contractionMultiple indicators weaken (GDP, jobs, retail, production) over months.

Rule of thumb: markets may experience 10% corrections fairly regularly; bear markets (20%+) are rarer, often around once a decade.

Examples of Recessions

  • Global Financial Crisis (2008–2009): Major indices fell 50%+ during the Great Recession.
  • COVID‑19 Recession (2020): Sharp declines in March 2020, followed by a rapid, stimulus‑driven rebound.

After recessions, markets typically recover as the economy stabilizes, but timing varies — full recovery can take months or years.

Correction vs Bear Market — Key Difference

  • Correction: Down 10%–<20%; usually short‑term and part of normal cycles.
  • Bear Market: Down ≥20%; sustained negative sentiment and often weaker economic conditions.

Stages of a Bear Market

1) Early Stage (Distribution)

Optimism lingers while “smart money” reduces exposure; early signs of slowdown emerge.

2) Correction (Transition)

Optimism fades; volatility increases; negative news catalyzes broader selling.

3) Capitulation (Panic)

Fear dominates; volumes spike; prices drop rapidly as many exit positions.

4) Stabilization (Consolidation)

Declines slow; some buyers return; early hints of economic repair.

5) Recovery (Accumulation)

Optimism slowly returns; earnings and data improve; a new bull cycle builds.

Investor Playbook

  • Expect volatility; corrections are normal.
  • Use deeper drawdowns to accumulate quality at better prices.
  • Match risk to horizon — avoid selling long‑term holdings in panic.
  • Keep cash/allocations ready for opportunities; rebalance methodically.

Bottom Line

Labels help, but discipline matters more. Stick to your plan, keep quality at the core, and let cycles work in your favour.