Morgan Stanley's Mike Wilson predicts S&P 500 trough. What does that mean for the economy?

Americans are showing heightened interest in learning more about the meaning of the economic term “trough” after Morgan Stanley’s chief investment officer Mike Wilson said, “The trough for the S&P 500 will be around 3,400 in a soft landing outcome.”

“In a recessionary outcome, we think it’d be closer to 3,000,” Wilson said in a CNBC interview on Friday.

The index closed Monday at 3,831 just slightly above the bear market threshold. It entered a bear market, meaning it dropped by at least 20% from its January record high, on June 13.

Wilson also predicts that “the conclusion of this bear market will come pretty quickly.”

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Trough definition in economics

In economics, the term “trough” is used to describe the point when economic activity has hit rock bottom. That usually signals that a recession has almost run its course and that economic activity will start to pick up.

The opposite of a trough is a peak or the highest point in an economic cycle. After a peak point is reached, it’s usually downhill from there which signals that the end of an expansion phase of a business cycle is on its way.

A committee of eight economists at the National Bureau of Economic Research is responsible for determining when economic activity hits peak or trough points based on a range of economic data such as GDP, the unemployment rate, and retail sales.

But the term “trough” isn’t only used to map out recessions.

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S&P 500 trough

Even though it’s more common for market analysts to talk about “markets bottoming out” as opposed to the market’s trough, the terms can be used interchangeably. Since the S&P 500 fell into a bear market, the burning question for investors is when will we hit the bottom?

Using history as a guide, bear markets in the S&P 500 bottom out after they’ve gone down by nearly 30% in 11.4 months, on average, according to research by LPL Financial. But if the S&P 500 falls into a bear market and the economy isn’t a recession, the S&P 500 bottoms out at around 24% by 7.1 months, on average.

Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here

This article originally appeared on USA TODAY: Morgan Stanley’s Mike Wilson says S&P 500 trough could be around 3,400