Retail investors keep buying the dip but what happens when the market doesn’t bounce back?

Retail flows increased after Trumps April 2 tariff announcement. Source: BNY

“Retail has been continuously buying dips since the pandemic,” said Adam Turnquist, chief technical strategist at LPL Financial. “But that trade worked out great. It has not broken until now, where maybe they bought the first 3% to 5% down, and now theyre underwater.”

Bob Savage, head of markets macro strategy at BNY, warned that the strategy can fail. “Outsized moves down have a tipping point linked to volatility and the state of the economy,” he wrote, adding that the rest of April depends on how the Federal Open Market Committee responds. “The history of 2008 trading suggests you need a bigger policy to turn the dip to work.”

Turnquist noted that if investors buy the first dip and the market keeps sliding or recovers slowly, they sit on losses for an unknown period. No one can forecast when the next rebound will arrive.

Sheridan used a rubber band example. Stretch it and it snaps back, stretch it again and it snaps back again. That has been the pattern for years. In 2024 alone, the S&P 500 set 57 record closes, about one every 4.4 trading days. Yet rubber bands can break.

Sheridan, who traded through the crashes of 1987, 2000, and 2008, worries the next prolonged slump will shock newcomers. “People who only began investing during the past 15 years have yet to experience something like that,” he said.

Heavy dip buyers are at risk of steeper losses

Trading platform Public reported a jump in customers moving money out of high‑yield cash accounts to buy stocks. Sam Nofzinger, Publics general manager of crypto and brokerage, said, “People have been sitting on mountains of cash for the past year and finally see [an opportunity to invest],”.

A deeper recession would not only drive prices lower; it could threaten jobs and incomes, slicing the money that fuels dip buying. “You really need a dot‑com or global financial crisis kind of situation for that to unfold,” Turnquist said. “And who knows. Thats not in our playbook for this year or next year.”

Whenever the next severe downturn arrives, heavy dip‑buyers risk steeper losses and, Sheridan fears, may quit the market altogether.

Still, he remains optimistic about the long run. “The good news is the markets are resilient. The markets are going to come back in time. There is no doubt in my mind that we will be significantly higher in the markets in the next 5, 10, 15 or 20 years,” he said. “The question is, what does it look like before we get there？ And how many people do we lose？”