Evaporating ‘Buy-The-Dip’ Shows Minksy Moment May Have Come

Authored by Ven Ram via Bloomberg,

In the euphoric stock rally since the end of 2018, pretty much every dip was met with a volley of even stronger buying. It was as though people were waiting for others to get off the bus so they could get in.

Investors who wanted to ask questions first and buy later were left with only questions and no answers. Those who had the heart to take the ride did pretty well by all means. Why, the Nasdaq 100 Index surged nearly three-fold and the S&P 500 Index almost doubled in just three years. When your money grows at a compounded annual growth rate of 26% and 38%, even Shylock wouldn’t complain.

If the rally in Nasdaq from the end of the global financial crisis until the first wave of the pandemic was the gentle ascent of a plane, the takeoff after the first wave was that of a helicopter. Yet, that steep climb was but a preparation for an eventual bungee-jumping. The fairy tale couldn’t continue forever, and there were enough alarm bells that were set ringing for those who were in the mood to pay heed.

Fast forward to 2022. And suddenly the appetite for dip-buying has evaporated, seemingly into thin air.

That has meant that Nasdaq 100 has declined more than 20% from its peak. Valuations have gotten cheaper (not cheap, though, mind you), and investors who were quick to pounce in after the first wave of the pandemic have been scratching their heads and saying, “No, thank you,” to Mr. Market.

And so there don’t seem to be as many exits as those looking to get out would like.

Just as the screenplay turned sour in the movie you were watching, it seems the plot line is not any more alluring elsewhere either. Stocks and bonds have been playing to a similar horror script. Charming Commodities has been playing to packed houses, but how many have the conviction to get in this late in the hope that the show will go on? And unless you are a dedicated fund, chances are that your commodities overlay isn’t all that big in any case.

Meanwhile, the Fed Opera begins tomorrow. If Chair Jerome Powell and his committee indeed play the mood music they have been outlining for a while now, the rush for the exits may have just begun.