You Just Missed a Chance to Buy the Dip in Tech Stocks — and That's Totally Fine
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Sorry investors: You blew it. Tech stocks just endured a slump that, in retrospect, seems like it was the perfect opportunity to "buy the dip." Nvidia, Meta and other tech stocks are rallying this week, and it appears to be too late to take advantage of a chance to buy shares at a discount.
Yet while this episode may feel like a missed opportunity, the truth is that investors are almost always better off not attempting to buy the dip — or even paying much attention to the market's short-term ups and downs.
After soaring in early 2024, tech stocks posted a loss of nearly -8% from July 1 to July 30 as investors locked in gains and rotated money into small cap companies and interest rate-sensitive sectors in expectation of a rate cut from the Federal Reserve.
Among momentum traders looking to time the market, there was plenty of chatter about the possibility of buying the dip during the last week of July. Now it appears as if this opportunity has already passed.
The tech sector gained 6.44% from July 30 to July 31, with Big Tech names posting outsized gains and once again proving the sector's inherent volatility is not indicative of a looming market correction, overvaluation or underlying weakness.
[UPDATE: In the hours after Money published this article on Thursday, the stock market fell significantly, with the tech-heavy Nasdaq index down around 3%. This kind of movement shows just how unwise it can be to try to time the market and buy the dip at the opportune moment.]
Tech stocks bounce back on strong earnings
Tech kicked off its earnings season the final week of July, with a handful of companies announcing strong revenues, earnings and forward guidance:
- After falling -7.38% between July 16 and July 26, Apple reversed its downtrend by gaining 2.16% over the past five days. The company reports earnings after market close on August 1.
- Meta Platforms have surged 10.12% since July 31 after announcing the it beat earnings by 8.11%. This comes after the stock fell -16% between July 5 and July 25.
- Nvidia, whose shares slid -23.49% from their year-to-date high on June 18 before bottoming, are up 4.27% since July 31.
- Nvidia competitor Advanced Micro Devices saw its stock jump 3.70% since July 30 on the back of quarterly earnings and revenue beats of 1.26% and 1.99%, respectively.
Other Magnificent Seven tech stocks are doing well, too. Google-parent company Alphabet beat earnings expectations by 2.41% when it announced on July 30. Shares are up 3.55% over the past five days.
It's a similar story for Amazon, which announces earnings after the close on August 1. Shares of the e-commerce giant are down -4.59% over the past month,but the stock has risen 4.24% over the past five days.
Time in the market beats timing the market
In retrospect, it seems like buying the dip in tech stocks a week or so ago would have been a lucrative move. But regardless of the apparent reversal occurring in the tech sector, attempting to time the market is not advisable. Volatility is more pronounced in the short term, and investors with long-term horizons are more likely to benefit from holding their positions.
In other words, it's often smart to ignore the market's day-to-day news and do nothing with your portfolio.
According to Hartford Funds, investors who missed the market’s 10 best days over the past 30 years would have seen their returns cut by 50%, while those who missed the best 30 days in the past 30 years would have seen their returns reduced by 83%.
Unless you own a crystal ball, attempting to time the market — and buy the dip — is easier said than done. For tech investors who held their positions through the sector's most recent selloff, second-quarter earnings are proving the worth of their buy-and-hold strategy.
