Market Swoon What It is How It Works Types
Market swoon is a term used to describe a sudden decline in the stock market. It refers to the overall behavior of the market and is different from a downtick or a downswing. Market swoons usually occur when trading is interrupted and combined with high trading volume. These events often happen in response to political or economic shocks. During a market swoon, major indexes like the S&P 500 or Dow Jones Industrial Average experience significant price drops.
Market swoons are caused by investors becoming nervous or having negative sentiments about the market or an upcoming economic event. When investors stop trading or sell off their assets, it leads to a market swoon and lowers security prices across the market. A market swoon is more dramatic than a regular market downtick or downturn, but it does not necessarily indicate the start of a bear market. Investor confidence needs to be restored for a market swoon to correct itself.
Different types of market downturns include downswings, market corrections, market swoons, and bear markets. A downswing refers to a decrease in economic or business activity. In the context of securities, it means a drop in the value of a security after a stable or rising period. Market corrections happen when stock prices drop after reaching a peak, indicating that prices were inflated. These corrections usually last less than two months, and price drops are typically around 10% or less.
Bear markets last longer than two months and see price drops of 20% or more. They occur less frequently than market corrections. From 1900 to 2013, there were 32 bear markets compared to 123 market corrections.
