Dip Buyers Capitalize on Tariff Fluctuations: Morning Brief

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While chaos may serve as a ladder, where is it directing investors? Up, as dip buyers hope, seizing the opportunity presented by Wall Street’s newfound negativity with both cash and courage. The same tariff uncertainty that has driven markets down has offered a chance for those willing to swim upstream against the tide.

On Tuesday, Bank of America’s equity strategists noted that as the market dipped into correction territory the previous week, clients flocked to US equities, focusing on individual stocks. Energy and tech sectors attracted the most investment. Strategists Jill Carey Hall and Nicolas Woods observed that more funds flowed into cyclical sectors compared to defensive ones, indicating that investors aren’t bracing for a recession.

“Predicting a market bottom can be challenging, yet identifying patterns is simpler,” stated Mark Hackett, chief market strategist at Nationwide, in a recent note. “Currently, contrarian indicators remain some of the most consistent trading patterns. Retail investors are still adopting a ‘buy the dip’ approach, while institutional investors appear to be more reactive.”

But what insights do retail investors possess that institutional ones may lack? Or more accurately, what risks are they ready to accept?

To the skeptical investor, share prices are only now just returning to “normal” levels, as the market has shed its most extreme excesses. A correction following record highs doesn’t imply that stocks are inexpensive. The rapid decline and the nature of the tariff-driven sell-off have caused some analysts to advise caution.

“The impact on long-term market breadth, the absence of institutional involvement, and pressures from defensive rotations make us wary of buying the dip at this moment,” wrote Adam Turnquist, chief technical strategist for LPL Financial.

As a wave of absurd and darkly humorous memes floods platforms like X and Instagram, one must ponder: what occurs when the dip continues to lower?

The decline of the AI trade currently lacks a definitive catalyst for recovery; growth apprehensions may soon manifest in concrete data; the Fed’s ability to cut rates to sustain growth will be limited by pressures to respond to tariffs; and the approaching tariff deadline next month poses yet another economic risk.

You don’t need to invoke the image of a falling knife to understand the challenge of timing the market bottom. Experts advocating for caution note that the market still has further to decline, or at least that the situation is far from stable — presenting a series of interconnected challenges ahead.