To put it simply, a stock market correction is when stock prices drop more than 10 percent. However, if the price drop exceeds 20 percent, it will be called a bear market, not stock market correction.
The stock market correction doesn’t do a single thing in actuality. It gives us a heads up that investors have turned even more pessimistic about the markets. The historical analysis of stock market corrections shows us since World War II, there have been 26 market corrections. The average decline is about 14%.
The duration of the stock market correction plays a major role as well. Measuring and giving the average length of a stock market correction would be highly wrong though. Because 50 years ago, the corrections could last up to six months. Since the early 1980s, the 12 corrections lasted an average of two months and a half. So if a stock market correction were to occur in 2020 or soon, you can expect it to last around that range. At least, hopefully.
Last Stock Market Correction
The most recent correction happened in the S&P 500 which lasted for 95 days. In fact, the 10 most recent stock market corrections in the S&P 500, only two of them turned to a bear market. So it is most likely that even after a stock market correction, things are likely to get better.
The stock market correction can occur because of anything that has a negative effect to the market. In 2020, there is only one major reason that a stock market correction can happen. This is obviously the coronavirus (Covid-19) as it is already impacting the stocks on a global scale.
Although corrections are fairly common, the breakout of coronavirus may or may not cause a correction but it is headed to one way steadily. The coronavirus is effecting China at a mass scale and being the country that is the second-largest oil consumer she is, the lockdowns cause a 20% drop in demand for oil.
It wouldn’t be wrong to speculate that there will be a fall in oil prices. Since these are already showing its effect in the stock markets, a correction isn’t looking so far away.