Should I buy the dip in this stock market correction?

The US stock market has been in the red since the start of the year. So, here’s why I’m looking to buy the dip in this stock market correction.

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Key Points

  • I interviewed Andy Moore, Vice President of Advanced Planning and Portfolio Solutions at Quantum Group to get his thoughts on buying the dip in the US market.
  • Strong economic data and declining oil prices seems to indicate that inflation is peaking.
  • I'm following Warren Buffett's advice to buy the dip and diversify.

I recently had the privilege of interviewing Andy Moore, the VP of Advanced Planning and Portfolio Solutions at Quantum Group to get his insights on how to invest in the US market during times of fear and volatility. After that, here’s why I’m looking to buy the dip with a couple of stocks in this stock market correction.

A strong economy

The next US Federal Reserve meeting is expected to mean a 50 basis points hike in the Fed funds rate. This is equivalent of a 0.5% interest rate hike and has sparked fear of a still-bigger stock market correction. The Fed has a history of being too hawkish and spurring recessions, which affects markets globally, including here in the UK. Nonetheless, Moore thinks that the US economy is strong enough to handle multiple rate hikes this year. This is backed by strong employment numbers, heavy assets, and positive earnings results. He also believes inflation is close to reaching its peak. Nonetheless, oil remains the biggest issuing affecting consumer prices. The black gold could spark chaos again if it spikes above $100 per barrel.

Moore sees this year’s stock market correction as being short-lived due to the positive economic data coming in. He expects new market highs to come at some point next year. This should happen once inflation cools down and supply chain bottlenecks ease. Unfortunately, that’s where his bullishness ends. He thinks those new highs could be followed by a potential recession soon after, and into early 2024. This is most likely to happen once ‘stagflation’ (High inflation, but slow or no real economic growth) starts to take effect.

Time is my best friend

Will all that deter me from investing? No. There are four cycles in investing — accumulation, mark-up, distribution, and legacy. This was mentioned by Moore in my interview with him. As a young investor, I’m currently in the accumulation phase. This phase is where I see buying opportunities with attractive valuations during a bear market. Moore sees the current US market correction as a buy-the-dip opportunity for me, as I begin to pick up good discounts on mega-cap companies with healthy balance sheets, attractive margins, and pricing power. The tech-heavy Nasdaq in the US is down over 12% so far this year. That presents plenty of opportunities for me to buy shares in big US-listed tech companies such as Amazon, Alphabet, and Microsoft.

My buy the dip strategy

As Warren Buffett once said: “A diversified portfolio with exposure to different sectors is protection against ignorance.” This same advice was alluded to by Moore in our interview. The main takeaway was for me to invest more in a variety of value and dividend stocks. These can include commodities, insurance, and healthcare.

I was also pleasantly surprised to find out that Moore follows a similar buying strategy to mine. And he continued to encourage me to buy the dip. This means buying when I see around a 5% to 10% decline in a specific stock. When I asked him how much cash I should be leaving on the side to buy those dips, he mentioned 15-20% of my investment portfolio.

Ultimately, my purchases would be dependent on my risk assessment during any market fall, of course. But I will be buying the dip in mega-cap companies with excellent fundamentals for my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Choong owns shares of Alphabet (Class A Shares) at the time of writing. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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