Market Swoon

What Is Market Swoon?

Market swoon is a buzzword for a dramatic, sudden decline in the overall value of the stock market. A broader event than a downtick or a downswing, a market swoon refers to the behavior of a market as a whole.

Market swoon is a colloquial idiom used in the popular press to describe a sharp and sudden drop in a stock market, using the metaphor of fainting to describe an unanticipated downturn. A market swoon affects the whole market, not just individual securities available on an exchange.

Understanding Market Swoon

Generally speaking, a market swoon occurs when there is a significant interruption in trading combined with trading volume, and often occur in response to political or economic shocks. A typical market swoon is seen when indexes, such as the S&P 500 or the Dow Jones Industrial Average experience a significant drop in price.

Market swoons are often caused by when investors grow nervous and develop negative sentiments regarding a market or an imminent economic event. Typically, such investors will cease trading or liquidate assets in response, which leads to market swoon, lowering security prices across the market.

A market swoon is much more dramatic than a market downtick or downturn. A swoon does not necessarily indicate the beginning of a bear market, but it is more dramatic than the kind of downturn that signals a market correction. A market swoon typically does not correct until investor confidence is restored.

Types of Market Downturns

A downturn for a security or a market indicates a decrease in prices, either as a standalone event or an overall trend. A downturn can be characterized as a downswing, a market correction, a market swoon, or a bear market.

A downswing is a downward turn in the level of economic or business activity, often caused by normal fluctuations in the business cycle or other macroeconomic events. When used in the context of securities, downswing refers to a downward turn in the value of a security after a period of stable or rising prices.

A market correction occurs when stock prices drop for a period after reaching a peak, usually indicating that prices rose higher than they should have. During a market correction, the price of a stock may drop to a level more representative of its true value. Under typical circumstances, a market correction tends to last less than two months, and price drops are usually only 10% or less.

A bear market, named after the downward motion a bear uses to attack prey, typically last much longer than two months, and prices drop 20% or more. Bear markets occur much less frequently than market corrections. Some analysts report that between 1900 and 2013, only 32 bear markets occurred, compared to 123 market corrections.