(Bloomberg) — Dip buyers have propped up U.S. stocks for much of 2021, but they’ve gone missing lately at a critical time: the final hour of trading.
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The S&P 500 has dropped 0.35% on average during the last 60 minutes of the past six sessions, with the biggest swoon clocking in at about 0.8%, according to Christopher Jacobson at Susquehanna International Group. On Friday, the index was up 1.3% with an hour to go until the weekend.
“Late-day weakness has been a recurring theme,” Jacobson, a derivatives strategist, wrote in a note. “Given the role that investors have attributed to the ‘buy-the-dip’ mentality in supporting the rally over the last year+, we find the recent trend worth highlighting, even if it ultimately proves to be a short-term lived anomaly.”
Buying the dip — or loading up on stocks after a drop — had been a winning strategy as equities broke record high after record high this year. But, according to Ryan Nauman, market strategist at Zephyr, investors now face a long list of worries — the Federal Reserve winding down its asset purchases, elevated valuations, uncertainty over fiscal stimulus — that are prompting them to wait for even bigger losses before they put money to work.
“Buying the dip was such an investment strategy for so long. Now, those investors are more likely to be nimble, stay on the sideline a little bit longer,” Nauman said in an interview. “They’re more willing to be patient and ride this bout of volatility, and they might be waiting for volatility to pick up even more” before dip buying again.
Susquehanna’s Jacobson says it’s tough to pinpoint a specific cause for dip-buyer reticence, but it’s likely a confluence of concerns causing cautiousness.
“The recent uptick in volatility (a near-3 standard-deviation decline at one point during the worst of last Monday’s sell-off, followed by this week’s ~2.3 standard deviation decline on Tuesday), Fed tapering on the horizon, inflation concerns, rising yields, etc.,” he said. “All these issues are likely piling up to make investors a little more hesitant about buying every dip.”
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