Dip buyers were out in full force

Market Trading EssentialsMarch 10, 2021

2 minutes read

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Wednesday, March 10, 2021

Everybody bought stocks last week

The first week of March was a strange one in financial markets.

The tech-heavy Nasdaq (^IXIC) fell for the third-straight week. The Dow (^DJI) and the S&P 500 (^GSPC) eked out gains. The 10-year Treasury yield (^TNX) rose for its sixth-straight week.

Monday’s trading brought investors much of the same — tech stocks were dumped as re-opening trades rallied. As of Monday’s close, the Nasdaq was officially down more than 10% from its Feb. 12 record high putting the index in correction territory.

Tuesday’s trading action — the Nasdaq gained just under 3.7% after falling 2.4% on Monday — suggests the market remains far from settled.

But client data from Bank of America Global Research published Tuesday shows investors are not deterred by the recent turbulence in markets and have broadly internalized the original market meme the predates any of the in-jokes that perpetuate the current conversation. And that original meme says — buy the dip.

And investors still do, apparently.

“Everyone bought the Tech rout,” said Bank of America’s equity and quant strategy group said in a note to clients.

“Last week’s big net buying was concentrated in Tech, which saw another near-record weekly inflow ($2.6B, the highest in over seven years),” the firm writes. “As a result, four-week average Tech flows have hit a record high.”

Again: buy the dip.

What these buys portend for the market, however, is a bit more of a mixed picture.

“Clients continued to buy equities at an aggressive pace: last week’s net inflows into US stocks ($3.7B) was in the 98th percentile of weekly flows in our data history since 2008, and the highest since mid-Dec,” BofA writes. “Historically, when weekly flows hit such extreme levels (>95th percentile), subsequent avg/med S&P 500 returns have been -1.1%/-0.1% compared to +0.7%/+1.4%, respectively, for all instances since 2008.”

Said more simply, these kinds of inflows tend to be followed by weaker than average market performance going forward.

Ryan Detrick and the team at LPL Research, however, note that when the Nasdaq falls into correction territory with the speed of the current decline, returns over the next six- and 12-month periods tend to be quite robust.

Since 1980, the Nasdaq has been higher 91% of the time six and 12 months after corrections that took fewer than 21 trading days to play out. Only in March 2000 — the very beginning of the tech bubble bursting — was this swift and sharp pullback not met with future gains.

News that will come as little surprise to readers of the Morning Brief.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland