Trading Nation

Here's why 'buy the dip' probably won't be the winning strategy it's been for years

Is it safe to buy the dip?
Is it safe to buy the dip?

"Buy the dip."

It's become a tried-and-true tactic on Wall Street, an approach equity investors could rely on since the financial crisis as stocks have climbed for the better part of nine years.

But some say that's no longer the viable strategy it once was as the market environment shifts and the Federal Reserve remains on its path to normalizing monetary policy.

Pravit Chintawongvanich, equity derivatives strategist at Wells Fargo, said that while he isn't seeing any indication of knee-jerk "panic" in the marketplace that would signal getting out of stocks, investors can't assume buying every dip will pay off.

"As long as the economy remains strong and you get earnings growth, then equities are going to continue to rise. But you're going to make your money in equities the same way you traditionally do, which is from rising earnings, dividends and buybacks. In other words, I don't see any particular panic or … to me, the risk-reward isn't necessarily screaming that you need to buy the dip," Chintawongvanich said Tuesday on CNBC's "Trading Nation."

In other words, investors are taking a more methodical approach to buying stock market dips, rather than swooping in to buy weakness. Chintawongvanich believes the market could very well rally over the next year, but in the short term there may not be a "buyable dips" as investors contend with factors like the rise in real rates and the competition equities could face from climbing Treasury yields.

"I'm not necessarily bearish on the market. I'd say, strategically, if you're invested in equities, then stay invested in equities. But to me, I don't see this as a tactical point to necessarily add exposure," he said.

Here’s why ‘buy the dip’ probably isn’t the winning strategy it’s been for years
Here’s why ‘buy the dip’ probably isn’t the winning strategy it’s been for years