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.
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