‘Buy the Dip’ Trends on Twitter, and Stocks Rebound From Their Lows

(Bloomberg) -- The ‘buy the dip’ mentality that’s become the mantra of pandemic-era markets paid off on Tuesday.

Just before 10 a.m. in New York, the Nasdaq 100 fell by more than 3%, wiping out the tech-heavy index’s advance for the year. Around that time, “buy the dip” began trending on Twitter as day traders took to their screens. By 3:20 p.m., the benchmark had turned positive, the first time it’s erased a loss of that magnitude since the pandemic panic last February. It closed down 0.2%

“Buy the dip” has been an almost-foolproof strategy that’s given succor to hedge funds and retail traders alike as U.S. stocks powered through a series of stumbles on their way to a 75% rally since March. Hedge funds and other institutional players have been using market pullbacks to double-down on high-flying technology names for months. Additionally, a breach of the Nasdaq 100’s 50-day moving average and Federal Reserve Chairman Jerome Powell’s commitment in front of Congress Tuesday to keep monetary policy easy also likely contributed to the rebound.

“Powell provided the assurance that investors needed to hear today,” said Adam Phillips, director of portfolio strategy at EP Wealth Advisors. “His reminder that inflation is a process monetary support isn’t going anywhere was definitely well received by the market.”

But in a market increasingly beholden to retail hordes, the social-media boost certainly didn’t hurt. Individual investors now make up 23% of equity trading and have flexed their might in recent weeks in the likes of GameStop Corp. and AMC Entertainment Holdings Inc.

“You’ve had this long period where just buying the dip has been the successful strategy,” said Elliott Savage, portfolio manager at YCG Investments. “People are now getting conditioned to, ‘if it’s a 30% correction, it’s going to bounce back in six months.’”

The Nasdaq 100 climbed as much as 0.3%, after plunging as much as 3.5%. The S&P 500 erased a loss of 1.8% on its way to a 0.1% gain.

“Buy the dip’ has paid off particularly handsomely over the course of the pandemic, meaning that most market pullbacks have been shallow. Before Tuesday, the S&P 500 had staged seven discernible retreats since October, including one in late January, none going further than 4% before a rally took hold.

©2021 Bloomberg L.P.