What is the difference between a market correction and a bear market?

Stock market declines are commonly classified by their size, measured from the most recent peak:

a pullback is a fall of 5–10%,
a correction is a fall of 10–20%,
a bear market is a fall of 20% or more.

A bull market is the opposite: a rise of 20% or more from a low. These thresholds are conventions rather than laws, but they are widely used in financial media and research.

How a decline is measured

The size of a decline is the drawdown from the previous peak:

\text{Decline} = \frac{P_{\text{low}}}{P_{\text{peak}}} - 1

and the gain needed to recover it is:

\text{Required gain} = \frac{P_{\text{peak}}}{P_{\text{low}}} - 1

A simple illustration

An index peaks at 5,000 points and falls to 3,800:

\text{Decline} = \frac{3{,}800}{5{,}000} - 1 = -24\%

That is a bear market. To get back to 5,000, the index must rise by:

\text{Required gain} = \frac{5{,}000}{3{,}800} - 1 \approx 31.6\%

How often they happen

For the US stock market, the history since the Second World War gives roughly:

Type of decline	How often	Typical length of the fall
Correction (10–20%)	roughly every two years	a few months
Bear market (20% or more)	roughly every five to six years	around a year

Bear markets have ranged from quick crashes — the 2020 fall lasted about a month — to long declines such as 2000–2002 and 2007–2009, each of which cut the market by around half and lasted well over a year.

What followed

Corrections have usually been recovered within months.
Bear markets have taken longer to recover, from a few months to several years; the deepest ones took years.
Missing the recovery is costly. Many of the market's strongest days have come shortly after its worst ones, in the middle of bear markets. Investors who sold during the fall often missed them.

What it means for investors

Declines are normal. A long-term stock investor should expect several bear markets over a lifetime.
The labels do not predict. A correction can turn into a bear market or end the next day; the thresholds describe the past, not the future.
Preparation beats reaction. An allocation chosen for the investor's risk tolerance, and a cash reserve for known expenses, make it possible to hold on through both.

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