Buy the Dips Is So … Last Month

Investors’ habit of bagging stocks during temporary slips could be going away, El-Erian warns.


Buying the dips has been a standard strategy throughout the pandemic rally. But Mohamed El-Erian thinks that could be over.

In his view, not scooping up relative bargains when the stock market drops may explain why September thus far has been so choppy for equities. “Until very recently, the behavioral aspects of this market were ‘buy the dips, there is no alternative, and fear of missing out,’” said El-Erian, Allianz’s chief economic adviser. “Those three came together, and every single fall was quickly reversed.”

Analysts have floated any number of reasons for the sudden negative reaction in the market recently: uneasiness about high inflation, doubts about what the Federal Reserve will do and when, and suspicion that the long rally is getting old and frail. To El-Erian, who previously headed bond house PIMCO, the source of this seeming pullback isn’t easy to divine, yet he urged investors to pay attention to the psychological forces at play.

“What we’re not seeing the last few days—this month, in fact—is that behavior” of buying on the dips, El-Erian told CNBC. “Now, part of it could be because the inflation jitters put in doubt the ability of the Fed to orderly, orderly, normalize. Part of it may be elevated prices. Part of it may be it’s temporary.”

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While the S&P 500 rose 0.85% Wednesday, this month—usually the worst of the year for the market—has had a rocky start. Every trading day last week was down, for a minus 1.7% weekly return on the S&P 500. This week has been topsy-turvy, with Monday registering a small gain of 0.23% and Tuesday off 0.57%, and then yesterday’s hop up. All that said, the broad market index is still ahead 19.3% for 2021.

During this market advance, investors have stuck with stocks as the best possible bet in a time of low interest rates and the anxiety that comes with not wanting to miss out on future gains. That has resulted in two telling acronyms, TINA and FOMO. The first, of course, means “there is no alternative,” in a slighting reference to bonds and other asset classes, and the second stands for “fear of missing out.”

“All I can tell you is you have to be a behavioral scientist because the last leg in asset prices has been really behavioral, has been people believing that if they don’t buy now, they’re missing out on an opportunity,” El-Erian said. As the pandemic got underway early last year, and the market went into free fall, El-Erian advised against buying the dips because he foresaw an even bigger drop ahead.

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So, the Market Outlook Is Cloudy, Huh? Not to JPM

The firm has a sunny view for stocks up ahead, differing from the likes of Goldman and BofA.


Much of Wall Street is doing a Jeremiah these days—referring to the Old Testament prophet who spied trouble ahead. In light of the Delta outbreak and other snags, many expect a market downdraft, often an outright correction (10% off the high).

But not JP Morgan. Its chief US equity strategist, Dubravko Lakos-Bujas, just told clients in a note that the firm views “these risks as well-flagged and in some cases overdone.” 

The ongoing coronavirus surge, a pullback of federal stimulus, weaker consumer sentiment, and troublingly high inflation readings have provoked market unease. And the S&P 500 is off to a rocky start this month. That’s why a host of Wall Street houses have issued warning messages lately, including Morgan Stanley, Citigroup, Bank of America, and Goldman Sachs.

No such clouds exist at JPM, though, which says the current market slowdown is temporary.

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“Despite concerns about the recent downshift in economic and business cycle momentum, we remain confident that strong growth lies ahead and activity is bound to re-accelerate,” Lakos-Bujas wrote. Some signs that the pandemic may be easing suggest to him that “strong momentum should continue into 2022 as businesses start to rebuild depleted inventories and ramp-up capex [capital expenditure] from historically depressed levels.” As if to punctuate that, a surprisingly robust retail report came out this morning.

JPM projects that the S&P 500 will hit 4,700 by January (that’s a 4.9% advance from Wednesday’s market close) and finish over 5,000 by the end of 2022.

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