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Q/A with Enrique Abeyta: Correction Vs Bear Market

What is the Difference Between a “Correction” and a “Bear Market”?

A “correction” is when the major stock market indices like the S&P 500 goes down -10% to -20% across months – usually 6 to 9. The higher volatility indices like the NASDAQ and Russell 2000 usually are down 1.5x to 2x that amount.

At that point, the market typically finds a bottom – although often violently – and then becomes to stabilize and eventually recover. Usually, it returns to previous highs within 6 to 12 months.

A “BEAR market” is when these indices go down -30% to -50% for the S&P 500 and even more for the higher volatility indices.  These last YEARS – usually 18 to 24 months.

They also bottom violently but typically don’t recover for another 2 to 5 years.

Note that the bottom of a “correction” always feels like a new “BEAR market” but it isn’t.

Which one are we in right now?  My bet is still a “correction” but stay tuned for next week and will tell you why…

Stay safe out there!

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