Stocks Are Getting Hammered. Big Money Is Waiting to Buy the Dip.
A scene from the New York Stock Exchange on Monday.
The stock market is down—a lot. The good news is that there is a pile of money waiting in the wings to buy the dip.
The S&P 500 is down about 10% from its all-time high hit in January, putting the index officially in correction territory. The Nasdaq-100, an index of the largest market-capitalization companies in the tech-focused Nasdaq Composite, is down almost 15% from the record high it hit in late November.
Driving the declines is the expectation that the Federal Reserve will lift interest rates several times this year and reduce its holdings of bonds to stave off inflation. Higher rates could choke off economic growth, while higher yields on long-dated debt—the likely result of cuts in the Fed’s balance sheet—make future profits less valuable in current terms, causing stock valuations to decrease.
It feels like the sky is falling. Markets may need more certainty about what the Fed is going to do before stocks can rise again, but there is a boatload of money just itching to buy shares.
That became entirely clear on Monday. From the S&P 500’s low point of the day of 4,222 to its close, the index rebounded 4.4%. It was only the 13th time since 2013 that the index has achieved a rebound of at least 4%, according to Instinet. The Invesco QQQ Trust Series 1 (QQQ), an exchange-traded fund that tracks the Nasdaq-100 Index, closed 5.1% above its intraday low of $336 a share.
Professional traders and investors were emerged in droves to scoop up beaten-down shares. As of 12:30 p.m., when stock indexes were deeply in the red, traders had placed nearly $8 billion more sell orders than buy orders, according to JPMorgan data looking at trading across the market, rather than just via the bank.
But by the end of Monday, when the indexes had moved into positive territory, the dollar tally of buy orders for the day exceeded sell orders by almost $10 billion. The majority of the buying was from institutional investors—not retail traders like those on popular platforms like Robinhood—so it appears to have been deep-pocketed pros that were responsible for the market turnaround.
That is a good sign for those looking to buy the market’s larger dip.
And it isn’t just the buying activity on its own that could easily make someone optimistic about the market. There weren’t many people sitting on the sidelines, indicating that Monday’s buying action may have been representative of what the market is likely to do when stock prices get to those lows.
Trading volume was high. About $68 billion of transactions on the Invesco QQQ Trust Series 1 occurred Monday. That’s the highest volume since at least 2015, according to Instinet.
It’s a sign that buying the dip isn’t a bad idea right now. Just remember that on Wednesday, the Federal Reserve will detail the results of a policy meeting now under way. If the central bank delivers worse news than expected, the stock market isn’t going to be happy.
Write to Jacob Sonenshine at firstname.lastname@example.org