At what point should I buy the dip on the S&P 500?

The S&P 500 has fallen by 8.5% over the past month. It’s at the lowest level since last September. OK, that’s not long ago, but it does reflect the sharp shift in investor sentiment over the past few weeks. As someone who’s focused on the long term, I’m confident that the market will recover. I can’t predict the future perfectly, so here’s my current game plan.

Uncertainty sparks concern

The major catalyst for the drop has come from uncertainty regarding President Trump’s tariff policies. In recent weeks, there have been announcements regarding import levies on Mexico, Canada, China and even the EU. Yet there have been subsequent rollbacks, exemptions for certain sectors and delays for some other applications. If there’s one thing that worries investors, it’s uncertainty.

As a result, some have decided to sell S&P 500 stocks to reduce their risk. Some of the hardest-hit shares are those in the car and agricultural sectors, which has been at the core of tariff chatter.

Looking ahead

Until we get some clarity on what’s actually going to happen with tariffs, I think the S&P 500 will continue to be volatile. Let’s say certain import levies do get introduced. At least in that scenario investors can then address which stocks to avoid and which have been oversold. So I don’t see the imposition of tariffs as being a negative for the S&P 500 overall. If anything, it will provide some certainty and allow us to move on.

In the long run, history shows me that the stock market should be higher several years down the line. But instead of buying the dip via an index fund, I’d prefer to be selective in what I buy.

One idea I like

One stock that I already own is Walmart (NYSE:WMT). It has been caught up in the recent fall, down 15% over the last month. Over the last year it’s up 42% though. I’m going to wait for some more clarity on tariffs in the coming weeks, but anticipate buying more within the next month.

It’s true that the company is partly impacted by tariffs, which is a risk going forward. It’s in the process of meeting with some Chinese suppliers to reduce pricing in order to combat the impact of the import tariff. It has the buying clout to strike a deal. And it doesn’t have major exposure to Mexico or Canada, so I’m not too concerned here.

The business has a proven track record of profitability over time. Q4 results showed revenue up by 4.1% versus the same period last year. Operating income jumped by 8.3%. Even though the firm is mature, it’s being smart, in “deploying capital toward the highest returns, using technology to enhance customer experience.”

So although I think it’s too early to buy the dip in the stock (and the S&P 500) right now, I’ll certainly be looking to do so within the next month.

The post At what point should I buy the dip on the S&P 500? appeared first on The Motley Fool UK.

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Jon Smith has positions in Walmart. The Motley Fool UK has recommended Walmart. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.