US stocks plunged on Friday after China retaliated against the United States for President Donald Trump’s tariffs in a tit-for-tat, further escalating a global trade war. The Dow went down by 2,231 points, or 5.5%. The S&P 500 was 5.97% lower. The Nasdaq Composite plunged by 5.82%. The Dow closed in correction, down more than 10% from its record high in December last year. “It is the first time the Dow has closed in correction since March 7, 2022,” according to a report by CNN. What is a market correction? A correction is a change in the stock price from its recent peak state. It usually takes place when there is a decline of 10% or more in the stock price. “The 10 percent trigger for a correction is an arbitrary, round-number threshold. But it serves as a signal that investors have turned pointedly more pessimistic about the market,” according to a report by The New York Times. Market corrections can last for any length of time, from days to months or more. Usually, they are short-lived. Why do market corrections occur? Market corrections (or for that matter, all types of market decline) take place when investors are more motivated to sell than to buy stocks. There could be a host of different reasons for this. These include a weak or slowing economy, the anticipation of an economic slowdown, or investor sentiment that the market is too hot and prices too high. Events that are not purely economic — such as wars, oil supply shocks, etc — can also spook investors, leading to a dip in the market. Note that market corrections are different from bear markets. Bear markets usually occur when a stock market declines by at least 20%. They can last any length of time but bear markets tend to last longer than market corrections. Moreover, market corrections are not as damaging as bear markets are to the market. “Although bear markets often go hand in hand with economic recessions, they are associated with different issues,” according to a report by Morning Star. How common are market corrections? Market corrections are fairly common in the US. Since 1929, the S&P 500 has logged a correction 56 times, according to a Reuters analysis of data from Yardeni Research. Of these, only 22 morphed into bear markets, the data showed. In the past 30 years, India’s three main indices — Nifty, Sensex, and Nifty 500 — have logged significant corrections eight times. Recently, Nifty 50 declined by around 16% between September 2024 and March 2025.
