Did Retail Investors Pass Tuesday’s Dip-Buying Test?

When markets dip, it often see it as a buying opportunity. However, Tuesday’s selloff felt different.

Following an ISM report indicating a slowdown in manufacturing, the S&P 500 plunged 2.1% and the Nasdaq Composite dropped 3.3%, marking the largest decline since August 5.

Retail investors did step in to buy the dip, but their response wasn’t as strong as in August. Marco Iachini of Vanda Research noted that while buying increased, it didn’t reach the high levels seen during the earlier selloff. September 3 saw net buying that was higher than most recent days but still below August’s levels.

Retail traders usually buy more aggressively after a few dips rather than the first one. Many investors had already been purchasing stocks recently, which might have depleted their available funds. Additionally, with pandemic-era savings largely gone, investors might be less prepared to buy the dip.

Iachini wonders how long retail investors can keep up their buying if the market continues to fall. Despite recent volatility, data shows retail investors are still optimistic.

Analysts like Bret Kenwell from eToro believe the market’s fundamentals remain solid, but upcoming events like the Fed’s policy meeting and the U.S. election could lead to increased volatility.