After the general plunge in US stocks, will the tried-and-true "buy on dips" strategy work this time?

Last Friday, the S&P 500 index experienced a drop of more than 1%, once again testing the long-term trend formed by US stocks over the past few months: whether investors will buy on the dip. Compiled data shows that this benchmark index in the United States has not experienced a consecutive drop of over 1% for 35 trading days, the longest record since December of last year, a situation that has only occurred three times in the past year. Despite increasing risks, the bullish sentiment in the market still exists. Concerns arise that Trump's tariff threats against major US trading partners will reignite inflation and harm corporate profits. However, this prospect has not led to sustained market decline. Before the drop last Friday, the S&P 500 index hit historical highs twice last week. Dan Greenhaus, Chief Strategist at Solus Alternative Asset Management LP, said, "Most investors seem to be waiting to see more specific progress on tariffs before making worst-case scenario plans. Given that there was not a significant inflation spike during Trump's first presidential term, I suspect many investors are skeptical about predicting the worst-case scenario." Kevin Gordon, Senior Investment Strategist at Jiaxin Wealth Management, stated that although overall indices continue to rise, the average decline in S&P 500 index component stocks has reached 9% this year, indicating internal market volatility. He stated that this dynamic is similar to 2024 when the benchmark stock index never fell by more than 8.5%, but individual stock average decline was as high as 21%. "However, I don't think this situation will continue," he said. "Given the tension brought by trade, immigration, and tax policies, there is a greater likelihood of greater volatility at the index level this year." The drop last Friday was the worst-performing day of the year for the market, attributed to weaker-than-expected economic data and rising consumer inflation expectations. Facing economic uncertainty, investors still find reasons to be optimistic. Strong fourth-quarter earnings from US large-cap companies have traders hopeful that White House tax cuts and deregulation plans will boost valuations. Tanvir Sandhu, Chief Global Derivatives Strategist at Bloomberg Intelligence, said, "Buying on the dip has always been the theme. As long as earnings are good, we may be in a period of pullbacks and declines rather than large-scale selling. Barclays Bank's US equity strategy director, Venu Krishna, wrote in a recent report that the market is showing a "strong 'buy on the dip' behavior" according to internal indicators. Morgan Stanley's traders also took a similar stance last Friday, noting a "buy on the dip" response in the most crowded stock baskets. Tom Lee, founder of Fundstrat Capital and a consistently bullish stock market analyst, has continuously stated that 2025 will be a time to buy on the dip. For him, this means that long positions in stocks have not reached "alarming levels," and more funds will flow into this asset class. "Whenever there is any noticeable weakness in the market, these pullbacks will be bought into," he said last Friday. "I suspect the same will happen with this drop."