It’s understandable S&P 500 investors try to jump in early when they see a rally — just in case it sticks. But that dip-buying strategy is only burning investors this year as the bottom falls out.
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Nine S&P 500 stocks that lure in bargain hunters, including Carnival (CCL), Stanley Black & Decker (SWK) and Meta Platforms (META), already burned investors three times this year, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. They’ve fallen an additional 20% or more from each S&P 500 low this year that was followed by a short-lived rally.
Such beatdowns of dip-buying is serving up a reminder that this year’s S&P 500 bear market just refuses to die.
“The September payroll report, while close to consensus, was still likely too strong to allow policymakers much breathing room,” said Matt Peron, director of research at Janus Henderson Investors. “The likely impact is to keep policy in tightening mode and to keep pressure on risk assets. We are not out of the woods yet, but should be getting closer as the impact of aggressive policy starts to take hold.
Bottom Fishers Get Burned
Being optimistic the bear market is ending is getting expensive. Three attempted mini-rallies have failed this year, fooling investors who try to profit by scooping up stocks ahead of time on the cheap.
Back in early February, the S&P 500 attempted a rally, rising 6%, only to falter 9.1% going into March. And then again March, the S&P 500 rose 11.1%, only to get slapped down more than 20% by mid-June. And a 17.2% rally followed that mid-June low, then the market sank nearly 17% amid the dismal September for stocks.
All these ups and downs have translated into big losses, even for investors trying to catch bottoms. And this series of declines is adding up.
Carnival Is A Dip Buyer’s Nightmare
Individual investors have been trying to bet on the recovery of cruise line operators for years. And it just keeps sinking their portfolios.
Even if you bought shares of Carnival on the Jan. 27 S&P 500 low, and rode it for a 21% rally in January, you’d still have lost nearly 32% of your money by the time it tanked again in early March. The next dip buying opportunity was even worse. Let’s say you bought shares at the S&P 500’s lows in early March. Even after a short-lived rally, you’d be down nearly 40% by mid June. And investors got fooled again if they bought at the lows of mid June; they’d lose another 37% in the September swoon. All told, the stock dropped an average 27.7% from each year’s “low.”
The trouble with Carnival is that everyone expects a comeback in its business. But it never seems to come. The company is on pace to lose another $4.68 a share this year. Yes, that’s better than the $7.06 a share it lose in 2021, but still amounts to a loss of more than $5.4 billion. And in this market, investors don’t like to see any red ink.
Meta Platforms Is Meta Quicksand For S&P 500 Investors
The company formerly known as Facebook is the mega example of the dangers of buying on the dip. Investors chasing this S&P 500 stock keep riding it lower and lower.
Even if you bought the stock the first day of the three times the S&P 500 put in midyear lows this year, you’d still be down more than 22.2% on average following each dip buy. The most painful example happened in late January when shares of Meta tanked to 294.64. From there they fell another 35% until hitting the next S&P 500 low. The bottom fell out from the market’s next two lows, too.
Remember when newbie investors thought stocks only go up? Those days are over.
Dip Buyers Beware
S&P 500 stocks that tanked the most following each “bottom” in the market this year
| Company Name | Symbol | Failed stock dip 1 | Stocks second failed dip | Failed stock dip 3 | Average dip |
|---|---|---|---|---|---|
| Carnival | (CCL) | -16.9% | -39.5% | -26.8% | -27.7% |
| Stanley Black & Decker | (SWK) | -13.2% | -30.7% | -27.2% | -23.7% |
| Match Group | (MTCH) | -17.7% | -21.8% | -30.3% | -23.3% |
| V.F. | (VFC) | -22.9% | -12.0% | -34.6% | -23.1% |
| Meta Platforms | (META) | -35.4% | -14.0% | -17.1% | -22.2% |
| Align Technology | (ALGN) | -8.9% | -43.5% | -11.7% | -21.4% |
| Warner Bros. Discovery | (WBD) | 0.1% | -43.7% | -19.1% | -20.9% |
| Caesars Entertainment | (CZR) | -0.2% | -43.6% | -18.6% | -20.8% |
| DISH Network | (DISH) | 2.3% | -44.8% | -19.2% | -20.5% |
Sources: IBD, S&P Global Market Intelligence, based on Jan. 27 low to March 8 low, March 8 low to June 17 low and June 17 low to Sept. 30
Source: https://www.investors.com/etfs-and-funds/sectors/sp500-tempting-stocks-burn-overeager-dip-buyers-every-time/?src=A00220&yptr=yahoo