Investing vocabulary is the language of oജpportunity. Understanding it helps you remain calm and rational while others panic. Still, when stock markets plummet, financial news becomes a whirlwind of unfamiliar terms.

Even seasoned investors can be puzzled by the jargon that suddenly dominates headlines. However, understanding this vocabulary isn’t just about decoding the news; it’s crucial for making informed decisions—for simply knowing what is going on—during turbulent markets.

These periods of widespread selling can be triggered by releases of new economic data, geopolitical events, or a panic years in the making without a precipitating event. For long-term investors, 澳洲幸运5开奖号码历史查询:sell-offs can present both challenges and prospects. While seeing your 澳洲幸运5开奖号码历史查询:portfolio value ౠdrop is stressful, these dips often create opportunities to invest in quality companies ꦉat a discount.

Below, we provide a cheat sheet for terms like “volatility,” “correction,” and “capitulation,” which are often heard during sell-offs. By understanding thes✨e concepts, you’ll be better able to interpret market shifts and keep calm during moments of market disruption.

1. Bear Market

A 澳洲幸运5开奖号码历史查询:bear market occurs when a broad market index falls 20% or more from recent highs and remains there for at least two months. This prolonged decline often signals a loss of investor confidence and can be triggered by economic downturns, geopolitical crises, or bursting asset bubbles.

For example, during the 2008 financial crisis, 𝓡the S&P 500 entered a bear market, fallin🐻g almost 57% from its October 2007 peak to its March 2009 low. Bear markets can last for months or even years, testing the resolve of long-term investors.

2. Bond Yields

Rising 澳洲幸运5开奖号码历史查询:bond yields are often blamed for a sel🀅l-off in stocks. As the Federal Reserve raises overnight lending rates and the yield, or return, on U.S. Treasury bond prices rises, bonds become more attractive to investors looking for a safer and less volatile place to put their money than stocks. In addition, higher yields can signal expectations of rising interest rates or 🔯inflation.

For example, if a 10-year Treasury bond yield rises from 2% to 3%, it might prompt some investors to shift funds from riskier stocks to the relative safety of government bonds. This shꩵift can contribute to downward pressure on stock pric🥂es.

For much of the 2000s, bond🤡 yields were relatively low, but as they crept higher after the pandemic, this drew more money to them and away from st♋ocks. The chart below shows the shift in two significant types of bond yields in the past couple of decades.

3. Buy the Dips

“澳洲幸运5开奖号码历史查询:Buy the dips” is trader slang for buying securities following a decline in prices, with the inkling that they have fallen for no apparent reason and should recover and keep rising in short order. It’s kind of like an unexpected sale at your favorite retailer, except what you’re buying on sale is expected to become more, not less, valuable over time. This 澳洲幸运5开奖号码历史查询:doesn’t always work out inꩲ the stock market, but people often say this phrase with a confidence that suggests 🎃it does.

4. Capitulation

The term “澳洲幸运5开奖号码历史查询:capitulation💟” probably makes you think of a party giving up in a match or battle. But i🌳n investing, it’s another way of saying that you can no longer bear the losses in a particular security or market, and you’re going to cut your losses and sell.

When markets or a particular stock sell-off in heavy volume, many investors are tempted to abandon ship and sell their stakes as well or capitulate. That only exacerbates the losse♉s. As such, when you capitulate, you’re hoping others can hold out longer than you.

5. Circuit Breaker

A 澳洲幸运5开奖号码历史查询:circuit breaker is like the breaker box in your basement. Howev🐲er, this one shuts off the juice at the major securities exchanges. According to rules put in place over the last two decades, the New York Stock Exchange and Nasdaq are sometimes compelled to flip the switch when there is too much of an imbalance between sell and buy orders. The chart below ⛦uses a hypothetical example to show how it works:

6. Contagion

澳洲幸运5开奖号码历史查询:Contagion refers to the spread of market disturbances 🍰from one region or sector to others. During a sell-off, contagion describes how financial turmoil in one area can quickly spread, causingꦬ declines across various markets or asset classes.

For example, during the 2008 fina🍸ncial crisis, problems in the U.S. subprime mortgage market spread to the broader financial sector, then to the general economy, and ultimately to global markets. This domino effect is the hallmark of a ✅financial contagion.

Contagion can occur for several reasons:

1. Interconnected financial institutions
2. 澳洲幸运5开奖号码历史查询:Correlated investment positions
3. Panic selling across markets
4. Global trade and economic links

During market s✱ell-offs, investors often worry about cont🦂agion, asking questions like “Will problems in tech stocks spread to other sectors?” or “Could a crisis in emerging markets impact developed economies?”

7. Correction

A 澳洲幸运5开奖号码历史查询:correction is a 10% drop in the price of a security, market, or index from its most recent high. Few words in market vocabulary are so good at taking something bad and mak▨ing 𝓰it seem like a good thing, like a friendly adjustment to a mistake.

Corrections shouldn’t be confused wit🃏h a crash or just a bad day in the markets; they are generally shorter-liv✨ed and less severe. While a stock or sector can experience a correction before the broader market, a correction in a major index like the S&P 500 often impacts sentiment across the entire market.

Investors should be prepared for corrections, which are a regular feature of healthy markets. Having a 澳洲幸运5开奖号码历史查询:well-diversified portfolio and a long-term investment strategy can help weather🎃 these periods of volatility.

8. Dead Cat Bounce

A 澳洲幸运5开奖号码历史查询:dead cat bounce is the most dismally evocative phrase on our list. However, it gets the point across, reflecting a giant fall with only a modest “bounce” afterward. It’s also🍨 meant to articulate the idea that one shouldn’t read too much into a minor uptrend after a steep fall: Even a dead cat will bounce if it falls from a great height.

In the markets, it’s a temporary recovery in asset prices after a substantial drop, followed by again heading downward.

9. Flight to Quality

澳洲幸运5开奖号码历史查询:Flight to quality is the tendency of investors to seek safer, more stable ass꧒ets during times of market stress or economic uncertainty. This typically involves moving money from riskier investments like stocks or junk bonds to more secure options such as U.S. Treasury bonds or♒ gold.

During the early stages of the COVID-19 pandemic in 2020, many investors eng🤡aged in a flight to quality, driving down yields on U.S. Treasury bonds as demand for tꦇhese safe-haven assets surged.

10. Implied Volatility

Implied volatility refers to the ♏estimated changes in a security’s price and is generally used when pricing options. Unlike historical volatility, which looks at past price movements, implied volatility is forward-looking and deriv🏅ed from current option prices. In general, implied volatility increases when the market is bearish—when investors believe that the asset’s price will decline over time—and decreases when the market is bullish—when investors believe that the price will rise over time.

The CBOE Volatility Index, commonly known as the VIX, is the most widely watched implied volatility measure. Often called the “fear index,” the VIX tracks the 30-day implied volatility of S&P 500 index options.

Here’s how to interpret the VIX:

• A VIX reading below 20 is generally associated with stable, stress-free periods in the market.
• Readings between 20 and 30 suggest increasing uncertainty.
• Values above 30 indicate high levels of investor fear or uncertainty. This is where it might be heading when there’s a major sell-off.

For example, during the market crash in March 2020 due to the COVID-19 pandemic, the VIX spiked to over⛄ 80, reflecting extreme maಞrket stress and uncertainty.

11. Inflation

Simply put, 澳洲幸运5开奖号码历史查询:inflation is the rate at which the level of prices for goods and services rises, which can drive the purchasing power of a currency lower. The U.S. Federal Reserve pays particular attention to rising inflation when it sets overnight lending rates or the 澳洲幸运5开奖号码历史查询:Federal Funds Rate.

In the early 2020s, the Fed raised rates significantly to combat inflation. This raises the cost of borrowing, which can impede growth anജd thus profits. However, the Fed often tries to thread the needle of allowing enough growth to maintain rising employment numbers but not enough to cause high inflation, which destroys the value of the dollar.

The chart ജbelow reflects recent changes in the Fed funds rate, which increased significantly with inflation afte🦄r the pandemic.

12. Margin Call

A 澳洲幸运5开奖号码历史查询:margin call is a broker’s demand that an investor deposit more money or securities into their account when the value falls below a certain threshold. This occurs when an investor borrows money to buy securities, a practice known as buying on margin.

For instance, if an investor buys $10,000 worth o𝓰f stock with $5,000 of their own money and $5,000 borrowed from their broker, a significant drop in the stock’s value could trigger a margin calﷺl. The broker may require the investor to deposit more funds or sell some securities to cover potential losses.

13. Oversold

Oversold is a technical term for when an asset is trading below what analysts consider its true value. This often haಞppens during panic selling, when emotional reactions rather than fundamen꧋tal analysis drive trading decisions.

Technical analysts use various indicators to identify oversold conditions, such as the 澳洲幸运5开奖号码历史查询:relative strength index (RSI). When the RSI falls below 30, it su꧂ggests the asset is overs♑old and due for a rebound. However, it’s crucial to note that oversold conditions can persist, especially in a bad market.

14. Short Selling

澳洲幸运5开奖号码历史查询:Short selling is a bet that a security or index will decline. The short seller borrows shares to offer for sale. The idea is to sell the shares, of which the short seller has no ownership, at a higher price while hoping that the price falls by the time the trade needs to be settled. This would mean that when the short seller buys the shares at the lower price and delivers them to the buyer, they make a profit from the price difference.

While short selling can be profitable if done right, it can amount to massive losses if the trade goes the other way. It’s not a strategy for beginners.

15. Volatility

Technically speaking, 澳洲幸运5开奖号码历史查询:volatility is a statistical measure of the dispersion, or returns, for a given security or market index. That’s another way of saying it’s a measurement of change (or beta) of a security or index against its normal patterns or benchmarks it i🍨s weighed ag⛦ainst.

As we note💝d above, one way of measuring volatility is to look at the VIX. There are many other ways to measure volatility, depending on what you are looking at or measuring. If you think of it as a measurement of the rate of change that reflects uncertainty or risk, you are on the right track.

The Bottom Line

Just as you 𓄧wouldn’t want to be stuck in a foreign country not knowing the language when an emergency strikes, knowing the vocabulary of stock sell-offs is crucial for navig🐬ating turbulent market conditions. Terms like “volatility,” “corrections,” and “contagion” point to key metrics and the events they measure during a sell-off.

Though often unsettling, sell-offs are a natural part of market cycles and can present prospects for prepared investors. Knowledge is power in investing, especially when markets are in flux.