The Stock Market Roller Coaster: Should You Buy the Dip?

It is no secret that US stocks have been going through a sharp downturn, weighed down by inflation, high interest rates, and mounting recession fears. Yet, it is those who buy during these same periods of decline who often reap the greatest rewards. After all, an investor is not just any ordinary individual: they possess this assured vision and resilience to navigate uncertainty, under which the greatest opportunities often lie, recognising potential where others see only loss.

However, buying the dip is not always a successful strategy, as if it were, every investor on the globe would be doing it. The fact that markets even go down in the first place shows exactly why it doesn’t work for everyone. But let’s say you had bought stocks during the 2008 crash, for example, it would have paid off wonderfully when the market recovered in the years that followed. So, the challenge is knowing when to buy but, more also, what to buy. For new investors, let me walk you through the current conditions of the market but most importantly, whether you should buy and what you should buy.

 First, it is important to point out that before 2022, investors had a sort of safety net, and by that, I mean the Federal Reserve’s actions. At that time, if the market started to decline too roughly, the Fed would step in to ease financial tensions, usually by cutting interest rates or simply by providing other forms of monetary stimulus. This often led to a recovery, as investors knew that the Fed would act to support the market. However, inflation has resurfaced, ultimately leading to a shift in the Federal Reserve’s focus. In the face of above-target inflation, the Fed’s priority is no longer to support the stock market but to control inflation through measures like interest rate hikes and other restrictive policies, which are in deep contrast to the previous measures implemented to support the stock market. As a result, the “Fed put” (its usual response to a market decline) has become significantly limited. Therefore, it is safe to say that investors no longer have the same level of confidence regarding their behaviour on the market and by that I mean investments.

So, should you buy the dip? The answer is simple: not yet. The volatility that has affected markets over the past couple of weeks will likely continue through March for a couple of reasons. First, investors are awaiting the upcoming Federal Reserve meeting, which concludes on March 19th. This is significant as it will provide clues about the Fed’s future monetary policy, which, as discussed earlier,  can profoundly impact market sentiment. More importantly, the U.S. tax-filing deadline in April is approaching. As businesses and individuals prepare to meet their obligations by liquidating assets, withdrawing funds, and transferring money, the increased demand for cash can temporarily reduce the amount circulating in the banking system, ultimately leading to a tightening of liquidity that inevitably impacts financial markets. 

But why is the market tanking down? It is no secret that at the heart of this decline are tariffs implemented by President Trump and the market’s surprised reactions to them. However, it is also important to point out that these will not be as harsh in the future as they seem right now (some even argue they are part of a negotiation tactic). If implemented long-term, these would harm the U.S economy, which would not align with Trump’s pro-business mindset. So if you’re considering investing, I would recommend waiting another month until the market reaches a more favorable bottom. That said, a simple decline is always a good buying opportunity, even if it hasn’t hit its lowest point yet.

Now, which types of stocks would I recommend buying during this period of volatility? First of all consumer staples such as Unilever: these are essentials in our everyday lives, so, therefore, they are not heavily impacted by tariffs. In this same category of necessities, we find healthcare, which is also not exposed to tariffs. My current favorite stock in this sector is Oscar Health, which is undervalued at the moment. Another option, often seen as a backup for investors, is gold (physical or ETF) or even silver (+other commodities). Energy stocks could also be beneficial right now, as, due to the tariffs, their prices are likely to spike. Lastly, I would mention AI stocks. As President Trump surrounds himself with tech leaders, these stocks are poised for long-term growth, even though some have been dragged down by the market decline.

Overall, I truly believe the current state of the market is not entirely unpredictable or negative. On the contrary, it presents a great opportunity to seize potential, but it’s important to approach it wisely and avoid focusing on short-term goals during these times.