An abrupt stock selloff on Friday — sparked by a report that magnified concerns about President Donald Trump’s potential links with Russia — prompted Wall Street’s favourite reaction in recent months: “Buy the dip.”
The phrase — or a cruder version abbreviated to “BTFD” — has become a refrain among traders who, nearly nine years into a bull market, have become accustomed to steadily climbing prices, interrupted only by occasional hiccups.
The latest example came on Friday as the S&P 500 slumped as much as 1.6 percent after ABC News reported that former US national security adviser Michael Flynn was prepared to testify that Trump directed him to make contact with Russians when Trump was a presidential candidate.
With investors perennially wary of uncertainty, the CBOE Volatility index, Wall Street’s fear gauge, spiked to its highest in more than three months.
But in under an hour, markets mostly recovered, with the S&P 500 down just 0.3 percent for the session.
Flynn also pleaded guilty on Friday to lying to the US Federal Bureau of Investigation (FBI) about Russia. His cooperation with special counsel Robert Mueller marks a major escalation in a probe that has dogged Trump’s administration since the Republican president took office in January.
“We’ve kind of gotten used to the drama in the White House,” Rob Stein — the chief executive of Chicago-based Astor Investment Management — said.
“Whether or not they prove that there are Russian relationship ties, that doesn’t have a long-term effect on the value of the stock market.”
Banking on tax cuts
The S&P 500 has surged 18 percent this year, in part due to optimism that Trump would fulfil a campaign promise to cut corporate taxes.
Helping Friday’s stock rebound, US Senate Republicans said they had enough support to pass a sweeping tax overhaul after last-minute negotiations to ease some senators’ concerns about its impact on the federal deficit, healthcare, and property taxes.
Wall Street has been banking on Trump’s tax cuts to bolster corporate earnings.
This year’s rally has left the S&P 500 trading at about 18.1 times expected earnings, its priciest multiple since 2004.
“I would buy any large sell-off, and I will continue to advise that course of action until I see signs of recession, because ultimately that is what will signal the end of this bull market,” Chris Zaccarelli — the chief investment officer of Independent Advisor Alliance — wrote in a note.
The sentiment may even be migrating from Wall Street to Main Street.
Web searches for “BTFD” on Google this week hit at least a five-year high, with many of those searches associated with stocks, finance, and surging bitcoin.
Some veteran investors worry about the confidence of younger traders who may not have experienced prolonged market turmoil.
“Everyone kids around about BTFD – until it doesn’t work,” Joe Saluzzi — the co-manager of trading at hedge funds’ trading handler firm Themis Trading — said.
“If you haven’t seen or experienced a bear market, then you don’t know what it’s like.” (Reuters)