Chief Investment Strategist, The Freeport Society
“Should I buy the dip?”
On Friday, I was at a dinner party with a group of dads from my son’s high school in Lima, Peru. (For newer readers, my wife is from Peru. And we live here with our three kids for most of the year.)
They are all successful guys at the peak of their careers. They’re smart, well connected, and worldly. They’re exactly the sort of parents you’d expect to see at an elite American school in a foreign country.
They know what I do for a living. And they all had the same question for me: “Should I buy the dip?”
I don’t have a crystal ball. I’m not going to insult your intelligence by telling you that I know what Mr. Market will do next. Only God Almighty himself knows that.
But I don’t recall a single time when virtually everyone in my social circle tried to call the bottom and guessed right.
So, today let’s return to the question of whether you should buy the dip.
Mom-and-pop investors are scooping up stocks with both hands. But there are reasons to be cautious. And my recommendation to you right now is to be patient and wait for better entry points.
Mom and Pop Can’t Get Enough of Stocks Right Now
It’s not just my dinner mates who are buying the dip.
On April 3, the day after President Donald Trump’s “Liberation Day” tariff announcement, the S&P 500 dropped nearly 5%. Mom-and-pop investors responded by pouring more than $3 billion in new money into U.S. stocks, according to Vanda Research.
The next day, the S&P 500 was down about 6%, and mom-and-pop dumped more than $2 billion in new money into the market.
In fact, as I write, they’ve plonked $1 billion dollars a day into shares every day since Liberation Day.
Meanwhile, Bank of America’s April survey of institutional fund managers just reported the fifth-most bearish reading in a quarter century, beaten only by the truly nasty sentiment in 2001, 2009, 2019, and 2022. The survey also reported that institutional investors are now 36% “underweight” U.S. stocks. If you don’t speak the arcane language of Wall Street, that’s a fancy way of saying the big boys are dumping U.S. stocks and investing elsewhere.
Now, maybe the little guy is right. Maybe it’s the Wall Street elite that are clueless.
But this is the same group that thought it was cute to refer to the stock market as the “stonk market” in 2021… imagined troubled computer game vendor GameStop was a viable long-term investment… and paid millions of dollars for Bored Ape Yacht Club NFTs.
Yes, that really was a thing. The highest price paid for one of these cartoon-like ape images was $3.4 million. Bored Ape #881, sold at a Sotheby’s Metaverse auction in October 2021.
Bored Ape Yacht Club is a collection of 10,000 NFTs on the Ethereum blockchain
But it’s more likely that retail investors are once again making the wrong move at the wrong time.
Here’s why…
Have We Hit “Peak Trade War” Yet?
It’s possible that we’ve hit “peak tariff.”
The Trump administration has put most of its “reciprocal” tariffs on hold for 90 days. I suspect that fear of the market’s wrath will keep them permanently on hold.
It’s also paused tariffs on smartphones and auto parts. We’ll see soon enough if Trump announces new tariff rates or if he lets them quietly disappear.
But peak tariff does not mean peak trade war.
Unfortunately, that looks to be just getting started. And as a proudly libertarian publication that believes in the power of the free market, that makes our blood run cold.
China hasn’t taken Trump’s taxes on its exports lying down. It’s responded with 125% tariffs on U.S. exports and has put major restrictions on imports of U.S. agricultural products, energy exports, and high-tech goods.
This includes soybeans, oil and gas, semiconductors, and cars.
It has also told its airlines to stop buying planes from Boeing. And more pointedly, it’s restricted the sale of rare earth metals that our tech and defense companies desperately need.
These metals are essential for everything from U.S. fighter jets and missile guidance systems to smartphones, wind turbines, and electric vehicle motors.
Neither side appears to be in the mood to let bygones be bygones.
China’s Ministry of Finance says that the U.S. “will become a joke in the history of the world economy” as a result of its tariff policy
And yesterday, Trump’s Press Secretary Karoline Leavitt hit back by reading a statement from the president…
The ball is in China’s court. China needs to make a deal with us. We don’t have to make a deal with them… China wants what we have, what every country wants, what we have – the American consumer – or to put another way, they need our money.
Well, yes. They do.
But American consumers also like the cheap prices that came from imported Chinese goods. American businesses want access to China’s market of 1.4 billion people.
These trading ties existed for a reason. Both sides believed they were getting something out of the deal.
And the U.S. market – as large and important as it is – isn’t the only game in town.
Now Is a Time for Patience
The U.S. may be the world’s largest importer. But only 13% of global exports are absorbed by the U.S.
The other 87% of exports go elsewhere.
As we put up barriers to our market, the rest of the world seems to me moving in the other direction.
As an aside, I’ve thoroughly “gone native” in my time in Peru. Like any good Peruvian, I always travel to the U.S. with empty suitcases inside empty suitcases inside empty suitcases like a Russian doll. And I leave with every last one of them bursting at the seams with cheap stuff I bought while stateside,
Why?
Because prices in the U.S. were always far better than prices in Peru.
Well, not anymore. Peru’s market remains open and the country continues to embrace free trade. The joke now is that the gringos will be visiting Peru with empty suitcases to stuff full of the American-branded shoes and clothes that are now cheaper in Peru.
The European Commission, which runs the day-to-day governing of the European Union (EU), just put out this statement…
In response to the widespread disruption caused by the U.S. tariffs, [EU] President [Ursula] von der Leyen stressed the responsibility of Europe and China, as two of the world’s largest markets, to support a strong reformed trading system, free, fair, and founded on a level playing field.
It doesn’t sound like the trade war is ending any time soon.
The chaos and uncertainty is causing businesses to put off major investment and hiring decisions. Already, major airlines like Delta and United have announced reduced flight schedules.
Wall Street is mostly frozen, with highly anticipated IPOs for StubHub, Klarna, and eToro all delayed due to lack of risk appetite.
And a recent Federal Reserve Bank of Richmond survey of 400 firms revealed that about 25% anticipate negative effects on their hiring and spending plans for 2025 due to tariffs.
Shoppers are starting to pull back. Consumer sentiment fell more than 10% in the last month. According to the University of Michigan’s latest consumer survey, it’s the fourth straight month of decline. Retail sales came in lower than expected in the first quarter, and this was despite a rush of panic buying to get in front of the tariffs.
And all of this is happening before Americans see the effects of the tariffs on their shopping bills.
The time to aggressively buy the dip may come. But we’re not there yet. Be patient.
When the guests at your cocktail party have washed their hands of their stocks, that’s when it’s time to back up the truck and load up on stocks. Until then, hold on to your strongest high-conviction investments and keep a healthy amount of cash in reserve.
To life, liberty, and the pursuit of wealth,
Charles Sizemore
Chief Investment Strategist, The Freeport Society