Markets Best Keep Their Bullish Impulses in Check
Investors would be doing themselves a favor by suppressing the urge to “buy the dip” right now.
Wall Street may not want to buy this dip.
Photographer: Angela Weiss/AFP via Getty Images
Financial conditions have tightened in the past three weeks, with stocks dropping, corporate credit yield spreads widening and mortgage rates rising back to almost 14-year highs. If the data continues to show inflation is moderating, it could be enough to help convince Federal Reserve Chair Jerome Powell and his central bank colleagues to only institute a modest interest-rate increase when they meet in two weeks — with one big caveat.
In order for that to happen, investors would need to suppress their obsession with “buying the dip.” The S&P 500 Index is now 14 trading days and 9.2% into its fifth mini-drawdown of the year. The first four lasted from 10 to 36 trading days and zapped 9% to 16% off the benchmark’s value from peak to trough. So, this slump is already within the range at which a brief reversal is possible, if not necessarily imminent. Will traders poke the hornet’s nest before the Fed’s September 20-21 policy meeting?