(Bloomberg) -- Buy the dip is AWOL.
Investors are losing their faith in the tried-and-tested tactic that’s worked throughout this bull market: treating every dip in U.S. stocks as a buying opportunity.
The SPDR S&P 500 ETF Trust, ticker SPY (NYSE:SPY), which tracks the benchmark gauge of American equities, has fallen an average of more than 1.2% at the open compared to the prior day’s close in the past three sessions on mounting concern over the spread of the deadly coronavirus. The gap is slightly worse than what transpired amid the re-escalation of the U.S.-China trade war in May 2019. It’s the poorest such showing since August 2015, when markets had a belated overreaction to the surprising devaluation of the Chinese yuan.
Euphoric Year for Stocks Falls Apart With Outbreak Pummeling S&P
Stocks tumbled around the world Monday on rising concern that the spread of the coronavirus will upend global economic growth. The three main U.S. equity benchmarks all dropped more than 3% and continued to slide while a gauge of equity volatility headed toward its biggest surge since February 2018.
Just as was the case during the trade war, meaningful changes in the newsflow overnight have wreaked havoc on markets. But what’s different this time is what traders are doing once markets open: continuing to sell. SPY (NYSE:SPY) has fallen roughly 40 basis points from the open to the close over the past three sessions as of 1:20 p.m. in New York.
Instances when SPY (NYSE:SPY) opens more than 1% lower on a Monday tend to see further selling throughout the session, according to Bespoke Investment Group.
But there’s a silver lining, at least in the short term, for equity bulls.
“On average, when SPY (NYSE:SPY) has gapped down more than 1% on a Monday morning, it has averaged a gain of 0.87% on the following trading day,” the analysts wrote. “Monday gaps lower have also seen the strongest gain over the next week, and the second strongest gain of any weekday over the next month.”