Dip buyers are feasting on the tariff volatility: Morning Brief

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Chaos may be a ladder, but where is it leading investors? Up, the dip buyers hope, taking advantage of Wall Street's newfound pessimism with cash and courage. The same tariff uncertainty that has sent markets tumbling has created a feasting opportunity for those willing to go against the grain.

Bank of America equity strategists wrote on Tuesday that as the market entered correction territory last week, clients poured into US equities, targeting single stocks. Energy and tech were the sectors leading the inflow. And as strategists Jill Carey Hall and Nicolas Woods noted, more investments came into cyclical sectors than defensive ones, suggesting that clients aren't preparing for a recession.

"Timing a market bottom is tough, but recognizing patterns is more straightforward,” said Mark Hackett, chief market strategist at Nationwide, in a note this week. “Right now, contrarian signals remain one of the most reliable trading patterns. Retail investors continue to embrace a 'buy the dip' mindset, while institutional investors have been more reactive."

But what do retail investors know that institutional ones don't? Or rather, what are they willing to tolerate?

Share prices to the skeptical investor are only now reaching “normal” levels, with the market having just jettisoned the most extreme frothiness. A correction after all-time highs doesn’t mean stocks are cheap. And the swift drawdown and the nature of the tariff-triggered sell-off have left some analysts expressing caution.

“The damage to longer-term breadth, lack of institutional participation, and defensive rotational pressures leave us cautious on buying the dip right now,” wrote Adam Turnquist, chief technical strategist for LPL Financial.

And as a flood of absurd and darkly amusing memes on X and Instagram get at, what happens when the dip keeps on dipping?

The unraveling AI trade doesn't yet have a clear catalyst to rebound; growth concerns may soon become crystallized in objective data; the Fed's rate-cutting ability to protect growth will be hamstrung by pressure to counteract tariffs; and the tariff deadline next month is another economic time bomb.

You don't have to reach for the metaphor of a falling knife to grasp the difficulty of timing the bottom. For the experts urging caution — that the market still has a ways to fall, or at least that the environment is far from being settled — there's a cluster of interconnected obstacles ahead.