Retail Investors ‘Buy the Dip’ Too

Professional investors weren't the only ones buying the dip last week.

More than half of the individual "active investors" polled by Fidelity Investments said on Oct. 9 that they would buy stocks during a broader market decline of 5% or more. For any readers who have been on vacation without cell reception for the past two weeks, that's just what happened. The S&P 500 fell 7.4% from its Sept. 18 high to its Oct. 15 low.

The Wall Street Journal

It has proven profitable over the past year to step in and buy stocks during any market declines, analysts and strategists note. So during the latest declines, Wall Street was warily watching to see whether the "buy the dip" strategy would pay off yet again.

But Fidelity's active individual investors, who make several trades each month, sounded confident.

"This was definitely a bullish crowd," said Ram Subramaniam, head of the firm's brokerage division.

An average 2,239 active investors answered each question. When Fidelity did the poll, the S&P 500 had already dropped 4.1% from its high. So it wouldn't be a stretch to guess that the 57% of individuals who said they would buy stocks after a 5% decline were jumping into the market last week. The active investors were fans of technology and health-care stocks in particular, the firm said.

Of course, that group was entirely made up of active investors, who tend to pay closer attention to market moves, and sometimes have a stronger appetite for risk.

Across all of Fidelity's15 million brokerage accounts, individuals were buying stocks as well. But they weren't quite as sanguine about the pullback.

The broader customer base sent 1.24 buy orders for every sell order for stocks last week, meaning they were still more bullish than bearish. But that was down from 1.26 during the second quarter and 1.32 in the first quarter, the firm said.

And during the first eight trading sessions of October, individuals still sent cash into stocks, but bought 38% less than the same period the month before, according to a firm representative. Instead of piling into stocks, they crowded into the perceived safety of the bond market, as the money going into bonds doubled from the same period in September. They jumped into that market during a steep rise in Treasury prices, which briefly pushed the rate on the 10-year note below 2%.