Wall Street is highly divided over buying the fall, as the US stock market is heading for the worst January since 2009.
Buying the dive or adding stocks during recessions has proven to be a lucrative strategy since the start of the pandemic. Markets have risen higher and faster as monetary and fiscal policy kept borrowing rates close to zero and flooded the economy with money.
But as the Federal Reserve moves toward high inflation, investors strongly disagree on how well the markets will return this time.
“The buy-the-dip reflex should be resisted in the environment we are likely to continue to face in 2022,” said Rob Sharps, the new CEO of T Rowe Price, the fund manager overseeing $ 1.7,000 in assets .
Bill Gross, founder and former chief investment officer of $ 2.2tn fund manager Pimco, told the Financial Times: “The buy-dip mentality has been wiped out in the market.”
The markets have had a tough start to 2022, as highly valued technology stocks and loss-making but busy names have been pulled back to the ground. The technology-heavy Nasdaq Composite index has fallen nearly 13 percent since the beginning of the year, while the S&P 500 index for U.S. blue-chip stocks has fallen 7.6 percent, even after a rally late Friday.
Equities have moved sharply while investors struggle with the path of US interest rates. The Federal Reserve signaled this week that it would begin raising interest rates in March, and Jay Powell, chairman, left the prospect of an aggressive sequence of rate hikes open throughout the year.
Wall Street analysts noticed: HSBC warned investors that there was not much to suggest Powell would step in to support a declining market, while Jefferies said the more the Fed tightens, the more optimistic about the markets will be in doubt.
“Any environment where there is a reversal of accommodative monetary policy makes it harder to expect returns to be robust and that it is necessarily the right thing to do to buy each withdrawal,” Sharps said in an interview with FT.
Still others throw themselves over retreats. Billionaire Bill Ackman, head of hedge fund Pershing Square, said this week that his group bought more than 3.1 million shares of Netflix after the price of the video streaming company fell.
“Many of our best investments have arisen when other investors whose time horizon is short-term discard large companies at prices that look extraordinarily attractive when one has a long-term horizon,” Ackman said in a letter released Wednesday.
Jonathan Gray, president of Blackstone, said earlier this week that “the market was trading out and the average Nasdaq stock has fallen above 40 percent. [from last year’s all-time high] could create opportunities ”for the private equity and alternative manager with DKK 881 billion. USD in assets.
And Cathie Wood of Ark Invest, whose once high-flying flagship portfolio of technology stocks has fallen 27 percent since the start of 2022, argued this week that “innovation is for sale” after asset prices fell.
Analysts note that this month’s divestiture is not only driven by concerns about interest rates, but fundamentals as companies trading at high valuation multiples begin to look more uncertain.
Gross said that as Fed policy tightens, investors, especially new ones who have only experienced a bull market, will shy away from buying stocks on the way down “into what we are beginning to see as a bear market”.
Additional reporting by Nicholas Megaw