Jeffrey Gundlach and “buying the dip”
“Buying the dip” usually happens when investors purchase an asset after there has been a significant dip in its price. This strategy usually works when the asset’s volatility (VIX) (VXX) isn’t very high.
Gundlach compared the recent “buy the dip” mentality to the complacency that took place in 2007–2008 before the subprime crisis.
As per Reuters, Gundlach said, “There’s potential for that here. Because the panic in December was a buying panic – not a selling panic – you never saw the VIX truly spike the way you want for a panic. You want to see that thing over 40. It never made it to 40.” His words implied that investors had been trying to buy on dips. He said that a crisis might still break out, as 2019 is expected to remain a turbulent year for US stocks.
Morgan Stanley on buying the dip
As reported by CNBC, Morgan Stanley equity strategist Michael Wilson said in November that buying the dip isn’t working for the first time in 16 years. He added, “Such market behavior is rare and in the past has coincided with official bear markets (20 percent declines), recessions, or both.”
In the changing market scenario, investors need to be more selective and think about companies’ (DIA) (IVV) long-term fundamentals. Also, as volatility increases and markets worry about prospects, gold (GLD) investments usually increase. Goldman Sachs is bullish on gold, as it expects market fears of a US (SPY) recession to strengthen.
Read How to Profit from the Current Market Uncertainty for more on this topic.