US markets wait for dip-buying investors

Price to earnings multiples are at the most attractive levels in some time

Though it got dicey toward the close, dip-buyers stood their ground in the S&P 500 on Wednesday, halting a two-day plunge that threatened to put a pall on Thanksgiving. Now we’ll see if they stick around.

If you’re bullish, you’ve probably been longing for the reappearance of traders whose willingness to dive into equities after every slump has helped keep stocks aloft for almost 10 years. By one measure, it’s been the worst year for the strategy this century.

Morgan Stanley sought to quantify their absence earlier in the week, employing a model that looked at all the times the S&P 500 fell over any five days during 2018 and measured the return on the sixth. This year, the average was negative — the first time that’s happened in 16 years.

“Buy the dip has gone away and instead there is an inclination, possibly, to start selling rallies instead,” said Eoin Angus Murray, Hermes Fund Managers’ head of investment. “It really is a complete reversal for everything we’ve seen so far for the last several years,” he added.

Of course, as stocks’ prices fall, so do their valuations. The recent slide has pushed the S&P 500’s forward P/E to 15, lower than almost any multiple since 2012. That’s cheap enough to get hopes up.

“In my mind, pricing is getting more attractive,” Steve Goldman, Kapstream Capital portfolio manager, said. “At some point, we’ll be back in the market and I would expect a lot of investors are thinking like we are now.”

Signs emerged Wednesday that a buyers’ strike isn’t on. The S&P 500 rose for the first day this week, holding onto gains of 0.3 per cent, after earlier rising as much as 1.1 per cent. Areas of the market that had been hit hardest, including the FANG complex and energy companies, led gains. “If you’re like us that believes in quality growth companies and long-term prospects, then I think now is the time to be brave rather than fear,” said Rebecca Jiang, executive director at JPMorgan.