It's been an abysmal year for the U.S stock market, but some experts say it's the perfect time to buy the dip.
Wells Fargo analysts said the market has likely dropped enough to account for what comes next in the economy, and that the worst has surfaced already, making it an opportune time to buy.
The analysts, led by senior global market strategist Scott Wren, wrote that seek to take advantage of this correction and any further downside that may occur by incrementally putting cash to work.
While Wren is not sure whether stocks have found an ultimate bottom, he believes that the price moves over the past six months have been in anticipation of what is going to happen.
The stock market tends to be an anticipatory mechanism, according to Wren. Financial asset prices have adjusted to reflect the likely reality, if the economy starts to fall into recession and inflation stays higher for longer. Brighter skies will be on the horizon eventually. The benchmark S&P index has been bottomed out about four months before the end of each recession dating back to 1948, on average.
The strategists said that we need to anticipate where the economy is headed and to adjust allocations to reflect potential improved conditions in advance. Our recommendation to be patient remains the same. We want to take advantage of this correction and any other downside that may occur by stepping into the market with sidelined funds. It can be a risky approach to buying the dip and trying to time the market.
Wall Street was dragged down on Thursday as investor concerns over rising interest rates and a darkening economic outlook continued to weigh on the market.
The S&P 500 fell by more than 2%, falling to its lowest level since November 2020. The benchmark index has already lost $9.1 trillion market value this year and is on track for the biggest annual decline since 2008.
The Dow Jones Industrial Average plunged by 458 points - or 1.5% - to 29,225 at the end of trading on Thursday, and the blue-chip heavy Nasdaq Composite plunged nearly 3% as mega-growth stocks like Amazon, Apple, Microsoft and Tesla took a hit.
Some investment experts have taken a more pessimistic view. Stanley Druckenmiller, who runs the Duquesne Family Office, a wealth manager with more than $1.3 billion of assets under management, warned that stocks could be stagnant for a decade.
The market, at best, is going to be flat for 10 years, like this '66 to '82 time period, he said last week, during a separate interview with Alex Karp, CEO of Palantir.