Buying plunging S&P 500 stocks on a dip is not a profitable long-term winning strategy — and usually a good way to lose money. But it's working for now.
Shares of the 10 stocks that dropped the most from the S&P 500's high this year to its low, including technology plays EPAM and PayPal plus health care Moderna and communications services Meta Platforms, since jumped an average of 20.9% since the lows, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's more than three-times greater than the S&P 500's 6.3% rise from it March 8 low this year.
There's lots of buying the dip going on. But investors are being more discriminating this year on what, and when, they buy, says Nicholas Colas of DataTrek Research.
"We don't know how many retail traders make money consistently, but in the aggregate they do seem to be reasonably adept buyers on dips," he said. "When markets rebound, they don't chase names on a third straight up day."
S&P 500: Lots Of Attention On Beat-Up Stocks
Buying on the dip is usually a treacherous strategy known for shredding wealth. But investors are trying it this year.
And it's showing up across the S&P 500. The 100 S&P 500 stocks down the most from the S&P 500's high to its low this year are up more than 11.6% from those lows now. That's miles ahead of the scant 1.2% rise of the 100 S&P 500 stocks that held up best during the market's sell-off.
And it's a similar story with S&P 500 sectors, too. The Technology Select Sector SPDR is up a powerful 7.2% from the S&P 500's lows, despite plunging more than 18% to the low. But the Energy Select Sector SPDR, which led with a 35.5% gain while the S&P 500 sank, is down nearly 5% from day the S&P 500 hit its low this year.
All this shows dip buyers are picking their spots carefully. They're still selling shares of Tesla and Nvidia, while picking up shares they think have more durable rallies going, Colas says. For instance, buying activity of the SPDR S&P 500 ETF trust outnumbers selling by 1.1 to 1, Colas says.
Beat-Up Tech Stocks Bounce (Mostly)
Investors' experience with shares of EPAM, a maker of high-tech testing equipment, widely varies based on when they bought it. Dip buyers love it, for now.
EPAM stock crashed more than 70% from the date the S&P 500 peaked this year until hitting a low. That's a massive crash that's almost impossible to make up from in any reasonable amount of time. And yet, dip buyers who bought in early March are up nearly 60%. That's among some of the best performances of any S&P 500 stock in that time. Keep in mind, though, shares are far from fully recovering. They're still down nearly 60% from their all-time high.
Same goes for plunging payment processor PayPal. It's still down more than 60% from its all time high after losing more than half its value this year the market's low. Dip buyers, though, think they're taking advantage. They're up more than 25% on PayPal stock from the day the S&P 500 hit its low.
Chasing Broken S&P 500 Leaders
Part of the siren's song of dip buying is simple. If you missed owning past S&P 500 leaders like Moderna, Meta Platforms of Netflix, early March offered a chance to own them at 45%, 44% and 42% off, respectively.
And so far, jumping into these fallen heroes is paying off. Buyers of Moderna at the S&P 500 lows are up 38% so far. And jumping into Meta and Netflix put investors up more than 10% on each. But savvy investors know it's best to wait until stocks form proper bases to make sure they're not simply going to see all their bounce gains fade away. Keep in mind Moderna is still 64% off its 52-week high and both Netflix and Meta are off more than 40%.
No wonder even dip buyers are treading carefully.
"All that speaks to some basic level of risk management. Retail may not be the 'smart money,' but from everything we've seen this year they aren't the dumbest money either," Colas says.
Dip Buyers Making Money (For Now)
All S&P 500 stocks plunged most from high to low are up now and most top the market
| Company | Symbol | Drop to low* | Bounce from low | Sector |
|---|---|---|---|---|
| EPAM Systems | -70.9% | 57.7% | Information Technology | |
| PayPal Holdings | -51.3% | 25.1% | Information Technology | |
| Moderna | -45.0% | 38.4% | Health Care | |
| Meta Platforms | -43.8% | 13.8% | Communication Services | |
| Netflix | -42.8% | 11.4% | Communication Services | |
| Aptiv | -39.7% | 18.5% | Consumer Discretionary | |
| Ceridian HCM Holding | -39.4% | 10.9% | Information Technology | |
| Align Technology | -36.0% | 6.8% | Health Care | |
| PVH | -35.8% | 20.7% | Consumer Discretionary | |
| IPG Photonics | -35.5% | 6.1% | Information Technology | |
| IPG Photonics | -35.5% | 6.1% | Information Technology |
