S&P 500 rout poses fresh test for Wall Street’s dip-buying habit
Friday’s rout in the S&P 500 Index will test a months-long market trend: investors stepping in to buy the dip.
The US benchmark has gone 35 sessions without posting consecutive declines of more than 1% — its longest such streak since late December and something that occurred only three times in the past year, according to data compiled by Bloomberg.
The bullish bias has persisted despite mounting risks. The worry is that Donald Trump’s tariff threats against major US trading partners will reignite inflation and hurt earnings. That prospect has yet to spark a prolonged slump, with the S&P 500 posting two record highs last week before Friday’s slide.
“It seems likely that most investors are waiting to see more concrete tariff progress before assuming the worst,” said Dan Greenhaus, chief strategist at Solus Alternative Asset Management LP. “Having lived trough President Trump’s first administration, which did not see a big headline inflation spike, I imagine many investors are skeptical at this point of worst-case prognostications.”
While the broad index has marched higher, the average S&P 500 stock has fallen as much as 9% this year, signaling churn under the surface, according to Kevin Gordon, senior investment strategist at Charles Schwab & Co. The dynamic resembles 2024, he says, when the benchmark stock gauge never declined more than 8.5%, but the average stock plunged as much as 21%.
“I don’t think that will persist, though,” he said. “There is more potential for bigger swings at the index level this year given the tensions stemming from trade, immigration, and tax policy.”
Friday’s slump, the market’s worst day this year, came after softer-than-forecast economic data and a jump in consumers’ inflation expectations.
Investors have found reasons to be optimistic in the face of the economic uncertainty. Fourth-quarter earnings from US large-cap companies have been strong, and traders are hopeful that the White House’s plans for tax cuts and deregulation will boost valuations.
“Buy the dip has been the theme,” said Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence. “As long as earnings are good, we might be in a period that sees corrections and dips rather than big selloffs.”
At Barclays Plc, head of US equity strategy Venu Krishna wrote in a recent note that markets are exhibiting “strong ‘buy-the-dip’ behavior” based on an in-house indicator. Traders at JPMorgan Chase & Co. on Friday took a similar line, saying that they’ve observed a “buy the dip” response in their basket of most-crowded stocks.
Tom Lee, a consistent equity bull and founder of Fundstrat Capital, has continuously indicated that 2025 is a dip-buying market. To him, it means that positioning in equities isn’t yet “uncomfortably long” and there is room for more cash to wade into the asset class.
“Anytime the market shows any pronounced weakness, these pullbacks are getting bought,” he said on Friday. “I suspect that’s going to happen with this dip.”
Alexandra Semenova and Jessica Menton, Bloomberg News
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