The current bull market is just shy of nine years old, and "buying on the dips" has been a favorite strategy of many investors, confident in the continued upward march of stock prices, and eager to snatch temporary bargains. A recent source of doubt seems to be abating, as President Trump's plan to slap high tariffs on various imports reportedly is becoming more narrowly-targeted by the day.
After falling 1% on Wednesday morning, versus Tuesday's close, the S&P 500 Index (SPX) rallied in the afternoon, as key administration officials tried to assuage fears that the trade situation would escalate, Bloomberg reports. While some bearish observers expected investors to sell on the rally, Bloomberg saw classic buy-on-the-dip activity at work.
Fall and Rebound
Through the open on March 8, the S&P 500 is up by 2.2% for the year-to-date. From its 2018 high at the close on January 26, to its low in intraday trading on February 9, the index shed 11.8% of its value. The rebound from that low point to the open on March 8 has been 7.9%.
As of this morning, the Investopedia Anxiety Index (IAI) was registering high levels of concern about the securities markets among our millions of readers around the globe. This represents some easing of worries, since the IAI was indicating very high anxiety for most of the past few weeks, starting during the recent market correction. (For more, see also: Why Big Stock Investors Are Bearish Despite Rally.)
Chris Harvey, head of equity strategy at Wells Fargo Securities, is among those who see solid fundamentals, including strong corporate earnings, that should give stocks more room to rise, as he told Bloomberg. In a note to clients on March 7, Harvey predicted an 8% increase in stock prices from their current levels, per Bloomberg. (For more, see also: 5 Factors That Will Determine The Stock Market's Future.)
"America's been doing pretty fine lately, we just need to continue along that path, because the economy has been extremely strong, fundamentals have been strong and if we can continue along those lines this could be great," is what Matt Schreiber, president and chief investment strategist at WBI Investments, remarked to Bloomberg. He also offered the opinion that Trump's recent tough talk on tariffs and trade "could be a negotiating ploy." (For more, see also: Why the Bull Market Is Alive and Well.)
Buying on the dips, however, is never a sure thing, since no one can be certain of the market's future direction. "That dip may prove to be a chasm, and the rise beyond it may not make you whole," is a warning issued years ago by economist, investment advisor, and longtime financial columnist A. Gary Shilling. (For more, see also: Buying Stocks 'On The Dip' at Record as Greed Trumps Fear.)
Even before Trump's tariff announcement rattled the markets, three key indicators were pointing to a slowing of economic growth, according to another Bloomberg report. These indicators are: a continued flattening of the yield curve; declining purchasing manager indexes (PMI) in Europe, China and Japan; and declining trends among the Citigroup Economic Surprise Indexes for the U.S., Europe, China and Japan, indicating that economic growth may be topping out, Bloomberg indicates. (For more, see also: 6 Reasons For Another $6 Trillion Stock Market Correction.)