Investors, particularly those in the retail sector, experience substantial profits by strategically purchasing stocks during market downturns, or 'dips', in the U.S. markets.
In the dynamic world of US stocks, retail traders have demonstrated remarkable success this year by adopting the strategy of buying dips, a trend that has been deeply rooted since the recovery from the 2008-09 global financial crisis. This approach has paid off handsomely for many, with retail traders making the biggest profits since the early stages of the Covid-19 crisis in 2025.
The confidence of retail investors, fuelled by a strong belief in the US market's resilience and optimistic geopolitical outlooks, has been a driving force behind this trend. Retail traders have aggressively bought into market sell-offs, particularly in the S&P 500 and high-profile, volatile stocks like Tesla and Nvidia, viewing these as opportunities rather than risks.
One notable phenomenon that has buoyed retail buying is the so-called "TACO trade," where traders expect trade-policy-driven market sell-offs to be swiftly reversed due to the administration's tendency to backtrack on unpopular policies. This has reduced fear during sell-offs and encouraged dip-buying, as traders anticipate a quick market recovery after initial shocks.
However, this strategy is not without its risks. Market volatility and unpredictability pose a significant threat, as some dips could reflect structural or fundamental problems rather than temporary sell-offs, leading to sustained losses if the market or specific stocks fail to recover. Overreliance on policy reversals could also prove detrimental if the political environment shifts to less accommodative stances, leading to sharper, longer downturns.
Moreover, concentration risk in volatile single stocks, such as Tesla and Nvidia, can magnify losses if these stocks suffer unexpected negative developments or broader tech sell-offs. Complacency due to recent success might also lead to underestimation of risks, potentially inflating valuations beyond sustainable levels and increasing vulnerability to sudden corrections.
Despite these risks, retail traders have continued to be a significant influence in the market, with individual investors pouring a record $155bn into US stocks and exchange-traded funds in 2025. As the strategy of buying dips remains popular, Rob Arnott, chair of asset management group Research Affiliates, suggests that the current volatile regime, due to Trump's unpredictable policies, makes buying low and selling high more profitable than in stable markets.
However, Arnott also warns that dip-buying can lead to regret when a market meltdown occurs. As such, it is crucial for investors to carefully consider the risks associated with this strategy and make informed decisions based on a balanced assessment of potential gains and losses.
- The strategy of buying dips, which has seen great success among retail investors in US markets, is largely driven by their analysis of the market's resilience and optimistic geopolitical outlooks.
- Taking advantage of market volatility, retail traders have aggressively bought stocks like Tesla and Nvidia, viewing these as investment opportunities rather than risks.
- However, the strategy of buying dips comes with its own risks, such as market volatility, concentration risk in single stocks, and potential overconfidence leading to underestimated risks.
- Despite these risks, individual investors continue to pour money into US stocks and exchange-traded funds, as the strategy of buying dips remains popular, and some experts argue it is more profitable in volatile markets like the current market influenced by Trump's policies. Yet, it's essential to engage in careful analysis and consider the risks associated with this strategy to make informed investment decisions.
