Buying the Stock-Market Dip Is Backfiring. Investors Keep Piling In Anyway.

Instead of rebounding after a tumble, stocks have continued to fall, burning investors who stepped in to buy shares on sale. The S&P 500 has dropped 1.2% on average this year in the week after a one-day loss of at least 1%, according to Dow Jones Market Data. That is the biggest such decline since 1931.

The extended downturn is putting a dent in the popular buy-the-dip trade, a strategy in which many investors found great success after the last financial crisis and particularly during the lightning-fast pandemic recovery.

Major stock indexes hit dozens of continuous records, convincing many investors that any downturn would be short-lived—and an attractive opportunity to buy.

The trade has backfired during the monthslong downturn that has dragged the S&P 500 down 23% so far in 2022, on track for its biggest annual decline since 2008. The selloff accelerated last week when central banks around the world increased interest rates, driving sharp swings across stock, bond and currency markets. All three major U.S. stock indexes fell at least 4%, their fourth decline of at least 3% in five weeks.

Many investors have been wrestling with high inflation, a continuing war in Europe and the prospect of a recession. In the days ahead, fresh data on consumer spending and confidence will provide clues on how high prices are shaping Americans’ behavior and the extent to which the Federal Reserve’s interest-rate increases are rippling through the economy. 

A look at the markets shows asset managers are moving money around in ways that suggest they see a recession coming. WSJ’s Dion Rabouin explains what to look for in investments. Illustration: David Fang

The volatility has been stomach-churning for many…

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