Six Reasons to Buy the Dips When the Market Pulls Back

It has been a wild few weeks in the market. Nothing like what we saw one year ago… but enough to make investors uneasy.

The S&P 500 Index fell around 4% from its peak on May 7 to its low on Wednesday. The Nasdaq Composite Index dropped 5% in the same amount of time (and slightly more than that from its peak on April 26).

When stocks get hit, investors get nervous. At times like these, I get questions from my readers, clients, co-workers, friends, Uber drivers… you name it.

I’ve been at this a long time, so I know exactly what you’re thinking and feeling. And I know the mistakes investors make when the emotions take over.

In particular, you should never sell just because it seems like everyone else is selling. That’s panicking, not investing. It’s also when most investors dig themselves into holes that they never seem to get out of.

That brings me to my mantra for right now… Ready?

Buy the dips!

When you’re bullish, pullbacks and even corrections are great buying opportunities. If a company has the same business model and growth potential this week as it did three weeks ago, but you can buy it for 40% cheaper, that’s a no brainer!

I am super bullish on the market… and extremely bullish on the hypergrowth trends and stocks I have been following. Here are six reasons why…

The Great Grand Reopening. Vaccination distribution is picking up speed. COVID-19 cases and hospitalizations are declining. The economy is beginning to reopen, and with it comes pent-up demand to do the things we haven’t been able to. Those things cost money. Which brings us to…

Record amounts of cash in checking and savings accounts. Businesses have been devastated and people have lost jobs, and it’s tragic. At the same time, Americans as a whole are sitting on more cash than ever before. We have the money to spend on the things we want to do.

Government stimulus is still flowing. Congress passed the American Rescue Plan in March, which injected $1.9 trillion more into the economy. Add this to previous bills in response to COVID-19, and you’re talking at least $4 trillion total. Most of this will flow into the economy… and the stock market. And I believe we’ll see more stimulus on the way.

Interest rates are still historically low. Please remember this when you read all the scary headlines about rising bond yields and rates and how bad that is. And remember this even more – stocks historically go UP when rates are rising.

Don’t believe it? My friends at LPL Financial recently shared the data to prove it… Looking at periods of rising rates going back to 1962, they found that the S&P 500 gained 17% on average when interest rates went up. And over periods of rising rates, stocks ended up higher almost 79% of the time.

Corrections happen. They always have and always will… and yet stocks continue to move higher over time. That makes them great buying opportunities.

This is incredibly important because it’s where so many investors get derailed. Think back to one year ago and how it seemed like the financial world was coming to an end. Here we are, more than 12 months later, and the market has blown past its highs before the crisis.

As this chart (also from LPL) shows, that’s to be expected. The average and median returns 12 months after the fastest corrections in history are right there around 30%… And after such corrections, the market has gone higher 90% of the time.

Yet despite all of this, my sixth and final point may be one of the most important to remember right now…

Innovation will not be stopped. The big, powerful hypergrowth trends in science and technology have continued to move forward. The pandemic didn’t stop them – if anything, it accelerated them – and nothing else will, either.

This is the nature of markets. The pendulum swings too far in the short term. Stocks were overbought after a big run, and when sentiment turned, it shot the pendulum way too far in the other direction.

That means good stocks with big potential go on sale… creating amazing long-term buying opportunities. Don’t miss out.


Matt McCall

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Source: Daily Wealth