The Trump trade turmoil reshapes the investment logic of the US stock market: Wall Street's "bottom-fishing" faith shaken!

After consecutive declines in the U.S. stock market on Monday and Tuesday, bargain hunters rushed in to boost a rebound on Wednesday, but the market fell sharply again on Thursday, with the Nasdaq dropping over 2.3% during the session.

In just a few weeks, President Trump's trade policies have begun to shake Wall Street's nearly twenty-year-old "buy the dip" trading logic.

Analysts say that more and more investors are turning to conservative strategies of locking in profits and waiting to see how the market unfolds, as the economic uncertainty caused by Trump's trade war makes it difficult for investors to determine the true winners in the future market.

Dave Mazza, CEO of Roundhill Investments, stated:

"Buying the dip now is like buying discounted concert tickets without knowing who the performers are."

"Compared to the previous general belief that 'buying the dip' was a reliable strategy, the high uncertainty surrounding tariffs and trade policies may lead investors to a blockbuster with huge box office success, or it could be a market disaster with poor box office returns."

Trump Reshapes Wall Street Investment Logic, "Bargain Hunting" Strategy May Fail

A series of Trump's policies, especially his anti-globalization tendencies, have disrupted the growth model of the global economy that has lasted for years, while also cutting government spending—this factor has long provided sustained stimulus to the U.S. economy.

However, more concerning than the policies themselves is Trump's erratic governing style—tariff policies are sometimes announced, sometimes withdrawn, and then reinstated, leading to severe market fluctuations and a significant blow to investor confidence.

Even though the U.S. stock market rebounded on Wednesday, market participants are generally worried that this brief recovery could be reversed at any moment by the next round of sudden changes in tariff policies.

Burns McKinney, Managing Director of NFJ Investment Group, bluntly stated: "Uncertainty may persist for quite some time."

The uncertainty in the market is dragging down the strong bull market in U.S. stocks that has lasted for several years. Previously, this bull market was driven by corporate profit growth and investor optimism about U.S. tech giants leading the artificial intelligence revolution, resulting in a 54% surge in the Nasdaq 100 in 2023, following a 25% increase last year.

Even though there are doubts about whether valuations are too high, this rally has still supported the "buy the dip" strategy. Before the end of July last year, the S&P 500 index went 356 trading days without a single-day drop of 2%, setting the longest record since the global financial crisis.

However, since mid-February, the S&P 500 index has significantly retreated from its historical peak, approaching a technical correction (a drop of 10% or more from recent highs).

Although some investors attempted to buy the dip, such as the S&P 500 rebounding 0.5% on Wednesday after two consecutive days of decline, the market remains weak. Since peaking in February, the S&P 500 has not achieved two consecutive days of gains.

After a brief rebound on Wednesday, Trump threatened again to impose tariffs on wine, champagne, and other alcoholic products from the European Union, putting pressure on the market, leading to declines in both the S&P 500 and Nasdaq on Thursday morning The tech-heavy Nasdaq 100 also failed to rebound continuously and fell into a technical correction zone in early March.

Burns McKinney, Managing Director of NFJ Investment Group, stated, "At the beginning of the year, the overall valuation of U.S. stocks was overvalued by more than 10%." However, he added, "This does not mean the market will immediately plummet, and investors will not rush into the market recklessly."

The market has not yet seen a full-scale sell-off, and rebound signals remain unclear

Despite a significant recent correction in U.S. stocks, the market has not yet experienced a 'capitulation sell-off'—a phenomenon characterized by extremely pessimistic market sentiment and widespread panic selling by investors, which is typically an important signal for a market bottom.

In fact, data from Bank of America shows that its clients have net bought stocks for six consecutive weeks. Additionally, the junk bond spread has not reached dangerous levels, and although the volatility index (VIX) has risen, it has not yet hit warning levels, indicating that market panic remains controlled.

Ted Mortonson, Managing Director at Robert W. Baird & Co., stated that the current market, especially the tech sector, is facing some seasonal headwinds. He believes that the primary task for investors right now is to "preserve capital" and warns that those trying to catch the bottom may not have experienced a truly severe market cycle.

Of course, not all market views have turned pessimistic. Wall Street overall maintains an optimistic outlook for 2025, and despite the recent market correction, some analysts still believe that the current risk-reward ratio is more attractive.

Some investors are still looking for buying opportunities. Citigroup strategist Scott Chronert stated that the correction in the S&P 500 has enhanced the market's investment appeal. Meanwhile, some investors are taking the opportunity to buy quality stocks, particularly in the tech sector.

Shana Sissel, Chief Investment Officer at Banrion Capital Management, believes, "This round of correction provides an opportunity to buy quality tech stocks at more attractive valuations."

However, attempting to catch the bottom still requires caution. History shows that market corrections are healthy, but market sentiment can quickly shift from cautious to panic, leading to larger-scale market sell-offs. Tanvir Sandhu, Global Derivatives Strategy Head at Bloomberg, warned, "No one can accurately predict the market bottom." He metaphorically stated, "Catching a falling knife is never a good idea."