Not every dip is a buying opportunity. Here's how to think about future stock-market pullbacks.

By Isabel Wang

Dip buyers are being rewarded this week, as they frequently have over the past 15 years. But is this the right time to ride a three-year-old bull market?

Is every dip a buying opportunity?

Have you been waiting for the right moment to jump back into the stock market? So have plenty of other investors.

An uptick in stock-market volatility over the past week has drawn some dip buyers back into U.S. equities, fueling a rebound even as trade tensions remain front and center on Wall Street. As a strategy, buying the dip has grown increasingly popular, as it has generally yielded good results for investors over the past 15 years.

Last week's selloff was hardly an exception. BofA Securities' clients last week were net buyers of the dip in U.S. equities after a month of selling, with inflows into single stocks totaling over $4.1 billion in the week ended Friday (see chart below). That was the fifth-highest weekly net inflow since 2008, according to Jill Carey Hall, equity and quant strategist at BofA Global Research.

SOURCE: BOFA SECURITIES

Institutional and retail investors also returned to large-cap stocks after three straight weeks of outflows. Institutional clients led the buying, recording their biggest weekly inflow since November 2022, while retail clients also came back as buyers after selling U.S. equities in four of the previous five weeks, Carey Hall said in a Tuesday client note.

Investors were also slowly making their way back into one of the largest exchange-traded funds tracking the S&P 500 SPX on Monday, after President Donald Trump's fresh threat of more China tariffs sent financial markets tumbling on Friday.

The SPDR S&P 500 ETF Trust SPY saw a net inflow of nearly $2.8 billion on Monday alone, reversing last week's $1.8 billion net outflow and helping the ETF claw back some of its hefty year-to-date withdrawals, according to Dow Jones Market Data.

Those who piled in after last week's selloff didn't have to wait long for their rewards. U.S. stocks have almost recovered from Friday's pullback, bouncing back this week thanks to Broadcom Inc.'s (AVGO) new deal with OpenAI and Federal Reserve Chair Jerome Powell's comment that the Fed would soon end its efforts to shrink its balance sheet.

The Dow Jones Industrial Average DJIA has risen 1.7% so far this week, while the S&P 500 was up 1.6% and the Nasdaq Composite COMP has gained 1.9% in the same period, according to FactSet data.

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To be sure, last week's stock-market stumble ended an unusually long stretch of calm on Wall Street. As of last Thursday, the S&P 500 had gone 33 trading days without a move of 1% or more in either direction - the longest such streak since before the pandemic, according to Dow Jones Market Data. But that came to an end on Friday.

The episode highlights a familiar market dynamic: Long stretches of calm often precede sharp, short-lived moves in the stock market, creating some volatility that can feel dramatic even when the longer-term trend remains unclear. For some, such market swings also present a dip-buying opportunity after a long period of sideways trading.

But the real question, then, is whether this really is the right time to hop back on the bull market that just turned three years old.

"Investors who are buying the dip are still driving the action, keeping sentiment firm even as technical indicators show signs of strain," said Mark Hackett, chief market strategist at Nationwide.

Hackett noted that the volatility over the past week looks more like "a healthy reset" than a pullback, with the market simply catching its breath rather than losing its footing. Meanwhile, earnings from some of the largest financial institutions have surprised to the upside and consumer health remains steady, suggesting that fears around growth may be premature, he added.

Buying the dip typically means investors purchasing a security after the price falls sharply, and expecting a quick rebound. When markets do recover, earlier dip buyers will sometimes take profits, sending stocks lower once again. This can create some volatility and short-term choppiness in the market.

And that is exactly the type of environment investors might be heading into, according to Ben Fulton, chief executive at WEBs Investments Inc.

"The reality is it's going to be a more profit-taking type of market. You get a rally and investors will take profits, and then markets will get some free fall," Fulton said. "[T]he stock market still needed some retracement. ... There's a lot of chaos out there, so we're not surprised if we have the next four to six weeks being crazy."

See: Wall Street's 'fear gauge' surges to highest level since May. Here's what investors should know.

The Cboe Volatility Index, also known as the VIX VIX or Wall Street's "fear gauge," on Tuesday traded as high as 22.76, its highest intraday level since May 23, according to FactSet data.

Since the VIX's inception in the early 1990s, the index has averaged just below 20 - a level many investors view as the dividing line between a calm stock market and a volatile one.

But Fulton told MarketWatch that the choppiness over the last few days has only "put the stock market back to normal volatility." He noted that Friday wasn't a perfect dip-buying opportunity, as there will be more profit-taking before the end of the year.

"We are still not out of the upper trending, but I could see a pullback that then sets up for the end-of-the-year rally, or early next year," Fulton said. After all, this is "a torturous, upward, climbing and grinding market that's not going to give you what you want," he added.

U.S. stocks were mostly higher in afternoon trading on Wednesday. The Dow was up 0.1%, while the S&P 500 was rising 0.5% and the Nasdaq was gaining 0.7%, according to FactSet data.

-Isabel Wang

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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10-15-25 1456ET