Macroscope | Behold, we have a market slip, so what should you do? Hint: try buying the dip
Fears of an equity meltdown appear exaggerated, as even after the recent sell-off, the tech-heavy Nasdaq Composite index remains in positive territory for the year
A nine-year bull market in equities is facing one of its sternest tests as the surge in volatility which began at the end of January intensifies.
In the first two months of this year, the benchmark S&P 500 index notched up 15 days in which it moved 1 per cent or more in either direction, nearly twice as many as in the whole of 2017, according to data from Bloomberg.
The bout of turbulence has become even fiercer over the last few weeks.
Since March 9, the S&P 500 has dropped 6 per cent. On Tuesday, tech shares, one of the most popular investments over the past couple of years, took a pounding, partly due to the fallout from the data mining scandal at Facebook. In a sign of the extent to which sentiment in equity markets has deteriorated, a tech index grouping the FANG block (Facebook, Amazon, Netflix and Google) and several other large companies suffered its sharpest decline since its inception in September 2014.
The “buy the dip” trading strategy – loading up on stocks whenever the market declines in expectation of a swift rebound – that has worked wonders with global equity investors over the past several years appears to have finally run its course.
On closer inspection, however, the jury is still out on whether investors have decided to stop buying on dips and instead sell into rallies in stock prices.