Correction, consolidation, bear market, CRASH!!!: the vocabulary of a stockmarket disaster

Summary:

A consolidation is a small pullback (0–10%), a correction is a deeper drop (10–20%), a bear market is a long decline over 20%, and a crash is a sudden, panic-driven plunge in a very short time.

Correction, consolidation, bear market, and crash. These could be the four most dangerous words in the financial world, but Sir John Templeton had already appropriated the expression for his famous aphorism: "The four most dangerous words in finance are: this time it's different."

Let's go crescendo:

Consolidation

Definition: this is the word used to describe a decline that no one cares about. Old hands or those who want to appear cool-headed consider consolidation to be "healthy" or even "beneficial."

In figures: a decline of 0 to 10% from the most recent peaks, but which starts to look like a real consolidation from 5% onwards.

The optimists' view: great, it's an excellent opportunity to buy stocks that were a little expensive.

The pessimists' view: all corrections have started with consolidations.

The graphic representation: a pothole in an uphill road, which becomes invisible over time.

Quote: "This consolidation is great, I was able to buy Palantir at 382 times earnings instead of 456 times."

Correction

Definition: it's when investors get really punched in the face and start to really get scared (definition not guaranteed, provided by an 87-year-old).

In figures: a 10%-20% drop from the most recent peaks. Statistically, there have been 27 corrections in the United States over the last 50 years (Source: Charles Schwab), the last one occurring in early 2025, between February and early April.

The optimists' opinion: great, it's an excellent opportunity to buy stocks "on sale", but we'll still wait a bit to see how things turn out.

The pessimists' view: all bear markets have started with corrections.

The graphic representation: a crevasse on the slope of a glacier, which may remain visible for a while.

The quote: "Please let it stop, please let it stop..."

The bear market

Definition: in French, we talk about a bear market. But we preferred to keep the American version, which is more animalistic. The bear symbolizes a decline on Wall Street, as opposed to the bull, which symbolizes an increase. The bear market is the beginning of hell for investors.

In figures: a sustained decline of more than 20%. There have been seven bear markets on Wall Street in 50 years. The last two date back to February/March 2020 (Covid) and January/October 2022. But the one in 2020 was so short (33 days) that it is difficult to really call it a bear market. Historically, the typical bear market lasts an average of 14 months and causes indices to lose 36%. But the latter two were shorter.

The optimists' view: a bear market lasts an average of 14 months, but a bull market lasts an average of five years.

The pessimists' view: I've been telling you for ages that the system is going to collapse, you bunch of idiots!

The graphic representation: a seismic fault line, which remains visible for a long time.

Quote: "I don't care, I've put everything into Swiss bonds, gold, and BX4."

The crash

Definition: a stockmarket crash is panic in fast-forward. A violent, brutal, sudden drop over just a few hours or a few trading sessions. It has nothing to do with an orderly or gradual decline: here, the markets collapse suddenly, in a climate of widespread panic. Contrary to popular belief, it is not so much the scale of the decline that defines a crash, but its speed, its violence, and its domino effect. The crash of October 1929 precipitated the Great Depression; the crash of March 2020, in the midst of the Covid crisis, wiped out several years of gains in a matter of days, before an equally spectacular recovery (well spotted, Kevin, March 2020 was both a crash AND a bear market express). In a crash, rationality gives way to herd instinct. Everyone sells, no one buys, and order books become black holes.

In figures: there is no official count of crashes. But we can count a number of single or consecutive trading sessions that meet the above definition. For the S&P 500, the sequence of -4.9% on March 11, 2020, -9.5% on March 12, 2020, and -12% on March 16, 2020 is considered a crash. The famous Black Monday of 1987 saw a 22.6% plunge in the Dow Jones. On Monday, October 6, 2008 (Lehman Brothers bankruptcy), the CAC 40 lost 9% in a single session. Over the week, it fell 22.7%.

Source:marketscreener

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