Market turmoil terminology: What are the definitions of a a bear market, a bull market and a correction?

 
Jessica Morris
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The FTSE 100's last bear market came during the financial crisis (Source: Getty)

The New Year sell-off has sent equity markets across the world into bear territory. But rather than a single, fatal trigger, it appears a general sense of unease over the slowing global economy is sending investors running for the hills.

Yesterday, the FTSE 100, Japan's Nikkei and the MSCI All-Country World indices all joined the Shanghai Composite, France’s Cac 40, the German Dax and the Russian Micex in this unenviable position.

But what does all the lingo being thrown around actually mean?

Bear market

This generally refers to falling stock prices over a sustained period of time. More specifically, it denotes a fall of more than 20 per cent from a previous peak, over the course of at least two months. The FTSE 100's more recent bear market came during the global financial crisis. The index peaked at 6,724 on 12 October 2007, reaching a trough of 3,512 on 3 March 2009 - a drop of 47 per cent.

Correction

A correction is when stock prices fall more than 10 per cent from a recent peak. Rather than a harbinger of financial calamity, it's a blip in what's otherwise an upwards trend. Corrections tend to last two months or less, ending when a market or asset "bottoms out" and investors start to buy again. The FTSE 100 fell into correction territory last August - having hit a seven-month low of 6,359 points.

Capitulation

Capitulation, correction's angrier cousin, occurs when investors lose all hope a market or asset will ever recover and simply abandon ship. Investors rushing to exit as quickly as possible results in high volatility and sharp declines, ie. panic selling. And, according to Investopedia, it's derived from a military term, which refers to surrender between fighting armies.

Bull market

Turning to brighter times, there's also a bull market. This is a sustained increase which indicates investors think a market or asset is on an uptrend for the long term. Britain's FTSE 100 had enjoyed a bull market since March 2009 - when the index bottomed out at 3,512 points.

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