To classify the state of the stock market, as quantified by a specific index, I am going to consider these three regimes:
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Normal State: The market is classified as in a ‘Normal State’ when the market index is less than 10% below its all-time high (ATH).
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Correction: The market enters a ‘Correction’ phase when the index is between 10% and 20% below the ATH.
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Bear Market: The market is in a ‘Bear Market’ regime when the index drops more than 20% from the ATH.
These regimes can be utilized, for example, to define different portfolio consumption rates, adapting them to the current market conditions.