Stocks roller coaster

If profit growth accelerates over the next two quarters – is it wise to buy the dip now?

Some analysts say yes!

Buying the dip means purchasing an asset, usually a stock, when its price has dropped. The expectation is that the drop is a short-term anomaly, and the asset’s price will soon go back up. It is a strategy that some traders and investors use to take advantage of price fluctuations and profit from market rebounds. 

However, buying the dip can also be risky, as there is no guarantee that the price will recover or that the asset is not in a long-term downtrend. Therefore, it is important to do your research, use indicators, and have a risk management plan before buying the dip.

Current market situation and general ‘readout’

The S&P 500 is still ‘buy the dip’ for the next six months,’ some analysts suggest.

In some reports, it is expected that the profit cycle will be positive over the next six months and for data to improve before a consumer-spending led downturn leads to a selloff in U.S. stocks! That’s the ‘general’ readout.

Corporate profit expectations are behind much of that forecast for stocks. Analysts expect profit growth to accelerate over the next two quarters and see the S&P 500 in a range of 4,050 to 4,750. A mild recession in early or middle 2024 should lead to a higher risk premium, pushing the S&P 500 back close to 3,800. This is all conjecture.

Other analysts doubt the earnings uplift potential and anticipate stocks to fall back sooner as PE ratios sit at an already high level.

Take your pick

My view, for what it’s worth, is for stocks to climb for the time being through into the New Year and then to face pullback.

Truth is, no one knows. We can all make educated guesses.

Just watch the markets and be ready for the fall – that is coming for sure!

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