Is two quarters of negative GDP a recession?

It is a popular rule of thumb and nothing more. The official US dates come from a committee at the National Bureau of Economic Research, which weighs a broad set of measures such as employment, income, spending and production, and does not apply a two-quarter test. A recession can be declared without two negative quarters, and two negative quarters do not guarantee one.

When does a correction end?

By convention, when the index makes a new high, or at the low point once that high is later regained. There is no official end date. In practice people call the bottom only after the fact, since a fall of 10% can stop there, turn into a fall of 20% or more, or chop sideways for months first.

Correction vs Bear Market vs Recession: The Differences

Q: Correction vs Bear Market vs Recession: The Differences

A correction is a fall of 10% from a recent high and a bear market a fall of 20%; both are market conventions with no official definition. A recession is a broad decline in economic activity, dated in the US by the NBER's Business Cycle Dating Committee, which does not use a two-quarters rule. Each can happen without the others.

Is the market in a correction, a bear market or a recession? It gets asked as if the words sat on one scale. Correction and bear market are price thresholds on an index chart, set by habit, while recession is a judgment about the whole economy, made by a committee, usually long after it has started.

How do the terms compare?

	Correction	Bear market	Recession
What it measures	An index’s price	An index’s price	Economic activity
Threshold	A fall of 10% from a recent high	A fall of 20% from a recent high	A significant, broad decline lasting more than a few months
Who decides	Convention	Convention	In the US, the NBER’s Business Cycle Dating Committee
Official?	No	No	The accepted dating for the US
When you know	The day the index closes past the line	The day the index closes past the line	Often many months after it began

Where do the 10% and 20% lines come from?

Habit. Financial media settled on them. Round numbers are easy to report. No exchange, regulator or index provider defines a correction or a bear market. Different sources even measure differently, some from closing highs, some from intraday highs, which can put the same day on either side of the line, so a close call can come down to which data feed you happen to be reading.

The arithmetic is simple from any high.

The recovery lines are the ones to remember. A 20% fall needs a 25% rise to get back, because the rise is measured from the lower base, and the gap between the two grows fast: deeper falls need disproportionately larger gains, and the volatility drag estimator measures what that asymmetry costs a portfolio whose returns swing up and down around an average.

How do you tell which one you are in right now?

Find the high first. On the index chart, locate the highest close before the decline, then measure how far the latest close sits below it.

The same check works on a sector or a single stock. Plenty of individual stocks sit in bear markets of their own while the index is near a high, and a portfolio built from a few of them can be down 20% in a market everyone calls healthy.

The way back out has its own convention. A new bull market is often dated from the low once the index has risen 20% from it. From a low of 4,000 that line is 4,000 x 1.20 = 4,800, which is still 4% under the old 5,000 high, so by the usual labels a new bull market can begin while the index is still below its peak. That sounds odd. It follows directly from measuring each move from its own starting point.

What makes a recession different?

It isn’t about stock prices at all. A recession is a significant decline in economic activity. It spreads across the economy and lasts more than a few months. In the US, the date it begins and ends is set by the National Bureau of Economic Research’s Business Cycle Dating Committee, a private, nonprofit research body whose dates are the ones economists and government agencies use.

The committee is slow on purpose. It waits for revised data, so the announcement that a recession began often arrives well after the fact, sometimes after it has ended, by which point the stock market has usually finished much of its move.

Can you have one without the others?

Yes, in every direction. Stocks can fall 20% on fears of a recession that never arrives, or on a jump in interest rates, or on a collapse in the valuations of a few large companies, while employment and spending keep growing. A recession can also arrive with only a correction in stocks. That happens when the market priced the damage early. And corrections happen in healthy economies all the time.

Stock prices are bets on future profits and rates. Recession dating describes activity that has already happened. The two share a cause often enough to be confused. The lesson on why stocks lead the economy walks through how that lead works.

What should you do with the labels?

Use them to describe, never to decide. Crossing the 20% line changes the headlines and nothing about the companies you own. A position you would sell at a 19% fall deserves the same thought at 21%.

Trying to name where the cycle stands, and trade on the name, is the habit argued against in stop trying to name the market cycle stage. The course Boom, Bust, Repeat covers how market cycles and business cycles relate, and the economics hub has the rest.