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Buy-the-dip mentality remains intact

Five years after the bull market began, the buy-the-dip mentality is alive and well on Wall Street.

After last week’s 2% dip, the Standard & Poor’s 500-stock index surprised investors Monday by rallying 1% despite the fact that Crimeans voted to break away from Ukraine and rejoin Russia.

Uncertainty surrounding the Ukraine crisis was instrumental in driving the market down last week. But just as investors did following the benchmark index’s six other pullbacks in the past year, buyers swooped in to grab bargains. Monday’s rally came amid relief that the Crimea vote was peaceful, that no fighting or bloodshed ensued, and a feeling that sanctions imposed on Russia by the U.S. and Europe were not punitive enough to hurt the global economy.

“The market move represents a relief rally from an oversold condition that developed after five days of selling,” says Carmine Grigoli, chief investment strategist at Mizuho Securities USA. “Investors have been conditioned over the past year to view pullbacks as an opportunity to add to positions.”

The S&P 500 has experienced six pullbacks since the beginning of 2013, with drops ranging from 2.8% to 5.8%, Grigoli’s data show. The average pullback was 4.4% and lasted 21 calendar days.

Investors who bought the market after each pullback, Grigoli adds, were “rewarded.” The S&P 500 gained an average 3.5% in the 10 days following the pullback and 6.3% 30 days after the dip.