FNArena’s Weekly Insights – May 19 2025
In today’s Weekly Insights:
-Is Buy The Dip Changing Markets?
-Compare The Pair: Expensive Versus Cheap
By Rudi Filapek-Vandyck, Editor
Is Buy The Dip Changing Markets?
Whenever something happens to financial markets, analysts and market participants often seek guidance from the past in order to assess what might plausibly follow next.
But, of course, the past does not always provide us with an accurate blueprint for the future. Investing is not that easy or straightforward.
One case in point could be this year’s rapid sell-off in response to President Trump’s US import tariff announcements earlier.
History shows equity markets tend to revisit the initial bottom before embarking on a new, sustainable uptrend.
Indeed, recent research by Longview Economics again confirms out of the 15 sharp pullbacks in the S&P500 between 1978-2018 no less than 13 of these saw the index put in a recovery rally, followed by another sell-off to revisit the prior low, before recovering more convincingly.
Longview’s analysis concentrated on pullbacks of at least -10% so this year’s sell-off would fit in with the historical pattern. Except for the fact indices have thus far only moved into one direction, and that is as far remote from their April low as possible.
This raises the obvious question: can history be our guide? Should investors expect another deep sell-off to similar magnitude as happened earlier?
Answering the question is no longer as straightforward as might previously seemed the case (apart from the fact that history is never a one-on-one for the future and there were two exceptions in Longview’s data-analysis).
Observation number one is that share market recoveries seem to be happening at much faster speed than in the past.
As also pointed out by other market observers, share markets in 2025 have pretty much made up for all previous losses in circa 1.5 months. This is one of the fastest recoveries in history. But wait, there is more…
