Another stocks Selloff, Another Opportunity to Buy the Dip — But This Time It Felt Different
When markets get jittery, retail investors often see it as a chance to buy. But this time, their approach was more cautious.
On Tuesday, markets tumbled after an ISM report signaled a slowdown in manufacturing. The S&P 500 dropped 2.1%, and the Nasdaq Composite fell 3.3%, marking the biggest drop since the August 5 global selloff.
Like in August, retail investors stepped in to buy the dip, but their enthusiasm wasn’t as strong this time. According to Marco Iachini, senior vice president of research at Vanda Research, while there was an uptick in buying on Tuesday, it wasn’t at the same levels seen during the earlier selloff.
Vanda Research’s data showed that retail net buying on September 3 was higher than most days in the past six months, but it still lagged behind the levels seen in early August and even late August when the market dipped more modestly.
Retail traders are known for buying when prices fall, but Iachini noted that their behavior doesn’t always follow a straightforward pattern. For instance, they tend to buy more aggressively after the second or third dip, rather than the first. He also pointed out that many retail investors had already been buying stocks in the past month, potentially depleting their available funds.
Another factor: many investors rely on their paychecks to invest, and pandemic-era savings have largely dried up, according to data from the San Francisco Fed. This could explain why dip-buying wasn’t as strong this time around.
The question now is how long retail investors can sustain their dip-buying strategy if the market continues to slide. Despite the recent pullback, Vanda’s data shows that retail investors remain bullish.
Some analysts, like Bret Kenwell from eToro, believe the bull market foundation remains strong, with supportive Fed policies and earnings growth. However, upcoming events like the Federal Reserve’s next policy meeting and the U.S. election may test the market’s resilience, and volatility could increase in the months ahead.
