Don't Be a Dip-Buying Hero Now

With stocks continuing take a hit, now is not the time to buy the dip. Here are three reasons why I believe investors should resist the dip-buying urge right now. The jobs numbers are worse than the headlines Jobless claims continue to remain high despite no closings or re-closings of any meaningful size. There are allegedly a lot of issues with data collection on the jobs front, but in late September we should be expecting some better data and are not getting it. Meanwhile, there is anecdotal evidence that people currently unemployed are under more severe cash flow pressure today than they were three months ago (only $300 of extra benefits rather than $600) and more of the unemployed had higher incomes than those unemployed three months ago. Finally, and this is most dangerous, the prospect of returning to your job has greatly diminished over that timeframe. The economy was able to muddle through the first wave of the Covid-19 pandemic because of the stimulus. This time I expect to start seeing weaker economic data as the stimulus benefits fade. Could be fixed with more stimulus, but... More Band-Aid stimulus, the type that helps those who have lost income or businesses due to the war on the virus, is necessary (maybe more carefully thought out than the Cares Act). Ideally we get infrastructure stimulus, or better yet, domestic manufacturing incentives and stimulus, but that now seems virtually impossible until after the election. Washington, D.C. has failed to provide additional stimulus since July (I think higher stock prices and good headline economic data has greatly reduced the urgency from D.C., as has a focus on equality). The looming election is already making it more difficult to get stimulus and the sad passing of Justice Ginsburg seems to add yet another level of complexity to any negotiations. So, I don't think we achieve any meaningful stimulus, which will weigh on the market. ...the re-opening momentum is losing steam The U.K. appears on the verge of going back to lockdowns. While the U.S. is unlikely to return to lockdowns, momentum in re-opening has lost some steam. The next issue, could be that as cold weather comes, we see voluntary re-closings as many businesses that have benefited from outdoor settings, face pressure if people don't want to participate as much as we shift to indoor settings (mostly restaurants, but other activities can be included). I would not consider adding risk until the Nasdaq 100 gets to at least 10,427 (the 100-day moving average). The 200 DMA is 9,515, which seems too low to be a target, but something to keep in mind. There have been somewhat bizarre trading patterns the past few weeks (overnight strength followed by weakness during the day) and some questions about valuations (no doubt, many of the companies are great companies, with solid growth prospects, but that doesn't mean their stock prices can't be too high). Unfortunately, fixed income is not likely to offset any losses in stocks to a meaningful degree because Treasury yields are already low and arguably artificially low (so don't look for 60/40 equity/bond allocations to perform well). I do expect that the reversal' trade (I cannot call it the re-opening trade as that narrative doesn't really apply) could work, where we see most individual stocks do OK while the broader indices get hit hard (the reverse of what we saw in July and August). Don't be a hero, there will be a time to buy this dip, but now is not the time.

Don't Be a Dip-Buying Hero Now

There are three key reasons why investors should resist the urge here.

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