Despite market shocks including Middle East conflicts, AI-related fears, and a significant sell-off in software stocks that erased billions in market value, retail investors have maintained a singular strategy: buying on dips.
Even as concerns over economic instability stemming from AI panic and US-Iran tensions led to recent stock market volatility, retail investors, who are playing an increasingly crucial role on Wall Street, have remained the most steadfast buyers. According to a report from Citadel Securities, February was one of the strongest months for retail buying since the meme-stock frenzy of 2021, ranking as the fifth-largest month on record.
On Monday, the first trading day following the outbreak of conflict, major US stock indices declined in early trading. However, analysts at JPMorgan noted that retail investors injected $2.2 billion into stocks and ETFs. US stocks ultimately closed nearly flat for the session. Dip buyers also helped narrow early losses on Tuesday.
Those who purchased stocks were rewarded on Wednesday, as markets rallied on hopes that the expanding Middle East conflict would be short-lived and relatively contained. The S&P 500 index rose 0.8%, led by gains in technology and communication services stocks. The Nasdaq Composite Index advanced 1.3%.
"This is excellent evidence of the US investor psyche—they have shown an extremely optimistic 'glass half full' mentality under any circumstances," said Steve Sosnick, Chief Strategist at Interactive Brokers. "The general mindset has become 'this too shall pass.'"
When confronting recent market sell-offs, including the technology stock decline in February, retail traders have again deployed the "buy the dip" playbook. This strategy is practiced by both individual investors and Wall Street professionals, who firmly believe in the power of compounding. Some cite Warren Buffett's advice about being "greedy when others are fearful." Many see the logic as simple—given enough time, markets generally trend upward.
Matt Meyer, a 54-year-old vegetable grower from Missouri, saw an opportunity in February when certain stocks plunged due to fears that rapidly advancing AI technology could disrupt the Software-as-a-Service (SaaS) business model—a view he considered somewhat far-fetched.
"It would be incredibly foolish for anyone wanting to keep their CEO position to adopt that kind of feel-generated solution," Meyer said, referring to the process of creating software via AI text prompts. "It just seems irrational."
Meyer stated that he and his wife made "significant purchases," scooping up several oversold stocks, including Salesforce, cybersecurity firm CrowdStrike, and Intuit, the parent company of TurboTax. He said buying during market downturns is a regular part of their investment strategy.
"I'm quite optimistic," Meyer remarked, noting he maintains a watchlist of stocks ready to buy when prices are right. "AI has been the driver for the past three years, and eventually all that capital will permeate other areas of the market."
Many investors appear to share his optimistic outlook. Despite initial concerns about potential disruptions to global energy markets and a surge in inflation following the attacks involving Iran, traders largely disregarded these worries on Wednesday.
The upward momentum in oil prices paused after government officials indicated the US would discuss providing ship insurance and military escorts to help facilitate oil shipments from the Middle East.
Despite last month's decline in the technology sector and this week's volatility, US stocks remain within striking distance of their all-time highs. The Dow Jones Industrial Average rose 0.5% on Wednesday, sitting only about 2.9% below the record high set last month.
"There are some short-term factors, but I think the market is looking through the noise," said Rob Haworth, Senior Investment Strategy Director at U.S. Bank Asset Management. "Does this disrupt the underlying fundamentals? We believe the answer is no."
In recent years, retail investors have acted as a kind of backstop for financial markets, making substantial purchases during events like the sell-off triggered by DeepSeek last year or the stock plunge caused by tariff turmoil last April. Some analysts note that their stock purchases have since become more selective.
The potential issue with this familiar retail tactic is that markets do not always rebound as quickly as they decline. However, in recent years, the "buy the dip" strategy has repeatedly proven effective. Even some investors who have remained on the sidelines in recent weeks say they are merely waiting for the right opportunity.
Charles Dodd, a 27-year-old investor from Texas, allocated about 15-20% of his personal portfolio to Tesla and UnitedHealth Group at different points when their shares plummeted last year. He stated that he plans to adopt a less aggressive strategy by 2026.
"The uncertainty adds a layer of complexity," he said, noting that recent market pullbacks have had a "shoot first, ask questions later" character. "I definitely won't be making those kinds of concentrated bets again," Dodd added. However, he is keeping some cash on hand, just in case, "especially if we see another double-digit decline."
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