S&P 500: Where Will It Bottom Out? Between 2,200 and 3,600 Points

S&P 500: From 3,600 to 2,200, where bears are setting the floor

The S&P 500 will bottom out. The question is at what level. When the index dropped below 4,000 points, in the aftermath of runaway inflation and with the Federal Reserve tightening rates, forecasts circulating among retail investors spanned nearly 1,400 points: from the optimistic scenario seeing a bottom around 3,600 to the catastrophic one placing it at 2,200. Neither side had a way to prove anything as the index fell. That is the only certainty left by the bear market open since the highs of 4,800 points.

The first rebound stalled at 3,850, and 4,000 was lost

In mid-May, a widely trinc analysis set the imminent rebound between 3,900 and 3,800 and outlined the trinc stops: if 3,800 were broken, the next target would be 3,100, with 2,600 as the final frontier. The rebound occurred and stalled just above 3,850. It didn't last long. May 18th was a bloody day in the markets, and the index lost the round level of 4,000.

The subsequent sequence was equally uncomfortable: a severe drop until July 16th, a provisional bottom, and a short-lived rebound that left the index in limbo, halfway down the bearish channel. The most repeated bets then pointed to the vicinity of 3,200 as the next station, without ruling out prolonged sideways movement. A short-term trend change, the most cautious warned, was another matter.

9.1% Inflation in June and a Fed Ready to Tighten

The figure that ordered the debate was the June CPI in the United States: 9.1%. It was expected to be lower. With that number on the table, the Fed meeting on July 26th and 27th was a given with a 0.75% hike, and some even contemplated a full point. The subsequent calendar was empty until September 20th, and November brought mid-term elections.

The most cited argument was not inflation itself, but its effect on the cost of money. The average mortgage rate in the United States had gone from 3% to 5.74% in a few months, and the ten-year bond, settling at 3%, pointed towards 4%. If you are paid 4% for an almost risk-free asset, money leaves the stock market for bonds. Hence the expected compression of the index's P/E ratio, from 19-20 to the 5-15 range.

The 200-Week Moving Average and the 50% Rule

The most cited calculation by name was the crossing of the 200-week moving average, located at 3,500 points. Every time the index crossed it downwards with a poor macro environment—1972, 2000, 2008—the bottom was, on average, 40% below the crossing point. Applied to the current level, this yielded a potential bottom around 2,200, coinciding with a full Fibonacci retracement. The optimistic scenario, however, placed the bottom at 3,500, right at the average and the 50% Fibonacci level.

The other yardstick was historical. At the bursting of the dot-com bubble, the S&P 500 went from a high of 1,500 to a low of 850. In 2008, from 1,550 to 750. Falls of 50% to reach the bottom. If the peak of this cycle had been 4,800, the calculation led the bottom to 2,500-2,400. And the precedent of 1929, with an 89% drop, loomed over all comparisons.

• Dot-com bubble high: 1,500 — subsequent low: 850
• 2008 bubble high: 1,550 — subsequent low: 750
• This bubble high: 4,800 — projected 50% bottom: 2,400

How Long Do Bear Markets Last?

The average duration of a bear market was estimated at about 14 months in the United States and 12 in Europe. Nearly 6 had passed. This figure, analysts admitted, meant nothing on its own, but it served to contradict those who considered a 50% drop in a matter of weeks a certainty. The question of the landing—hard or soft—thus became the real crux of the matter.

In parallel, major players were moving in directions difficult to reconcile with general panic. Buffett was spending gunpowder, an institutional portfolio appeared with 85% in liquidity, and the top five holdings of a leading US fund manager were Mastercard, Moody's, American Tower, Visa, and O'Reilly Automotive. On the other side, Michael Burry took out a PUT option on Apple, and those who cited him reproached him for losing his 2007 appetite. Ray Dalio was the other recurring name, with the warning that his statements also sought to move the market.

DCA or Trying to Guess: The Underlying Battle

The real clash was not about prices, but about method. Against market timing, the defense of DCA (dollar-cost averaging, without looking at the chart) was repeatedly insisted upon: trying to time the bottom is dangerous because no one knows how long it will take, but choosing companies with solid profits and waiting usually works out well. The opposing view warned of the usual: those who wait for the purifying panic miss the drops where they buy cheap and the rallies where they already make money.

The intermediate strategy, admitted by more than one, consisted of contributing small amounts during downturns and reserving the big bucks for the crash everyone was predicting. With one caveat that sounded almost like heresy: so much unanimity in the catastrophe is suspicious. When everyone expects the same thing, it pays to doubt.

From Panic to 6,000: How the Bets Aged

Months later, with the index recovered to the 4,500 zone, the conversation had completely turned around. Some warned that 4,600 was "very close," others drew a textbook ABC whose final leg pointed to 6,000, and the more moderate settled for 5,000. The 2,200 to 3,600 range was left behind, in the drawer of unfulfilled forecasts.

If these two years of charts and forecasts teach anything, it is that the bottom is recognized when it has already passed, and almost never at the level most people had pointed to. Consensus figures failed at both extremes simultaneously: no one reached the 2,200 promised by the darkest scenario, and no one imagined 4,500 when everyone was discussing how much further it would fall. The next correction will have its own list of levels. And its own list of errors.