When stocks sell off abruptly, as they did on Friday, many investors start thinking there might be bargains to be had and they start to buy.
Buying the dip often works. It worked big-time after the 10% sell-off of the Standard & Poor's 500 Index after President Trump released his tariff plan on April 2. Through Friday, the index is up 23.6% from its April low of 4,835.04.
If the S&P 500 had just been unchanged on Friday, the gain would be 25%.
In fact, the major U.S. indexes would have ended the week up at least 0.5% if they'd ended Friday unchanged. Instead, the selloff wiped out the week's gains. The results for the week:
S&P 500. Friday close: 45,977, down 0.4%.
Dow Jones Industrial Average. Friday close: 42,198, down 1.2%.
Nasdaq Composite. Friday close: 19,407, down 0.7%.
So, is a buy-the-dip shot possible this week? Possibly, just because Friday's slump was pretty violent, thanks to the Middle East crisis and a weak consumer-confidence report from the University of Michigan.
Just before 8 p.m. EDT Sunday, futures trading suggested dip buyers are already at work, even as the shooting war between Israel and Iran doesn't look as if it's ready to stop yet.
That may explain why gains so far are modest.
Through Sunday Israel was attacking as many sites as possible, trying destroy military and scientific facilities as well as Iranian leadership. Iran was shooting many missiles all over Israel.
Some 200 Iranians are known dead, news reports say, including seven key military leaders and nine top nuclear scientists. At the same time, at least 13 Israeli citizens have died in the missile attacks.
Maybe a truce can be reached, but the potential for really bad things to happen is sizable, such as:
Nuclear weapons get fired.
Israel attacks Iran's key oil terminal at Kharg Island.
Iran could block off the Strait of Hormuz, disrupting global markets for crude oil and liquefied natural gas.
Still, one can hope.
A buy-the-dip rally happened in 1991 in the first Gulf War,. It was apparent that Iraq, which had invaded Kuwait, would be overwhelmed and pushed out by an overwhelming U.S.-led coalition of troops. A cease-fire was agreed to on Feb. 28.
Stocks plunged on the first news of coalition bombings on Jan. 10, but then the S&P 500 surged 18.6% in the next 28 trading sessions without a single down day. The index ended the year up 26.3%.
Anyone trying to profit on dip-buying, however, must also keep in mind:
It's a good idea to expect higher oil prices after Friday's 7% gain to $72.98 a barrel. Crude oil was up more than $2 a barrel in futures trading Sunday.
Some stocks have become pricey, including Oracle (ORCL) , up 23.7% last week alone. But its relative strength index is at 89, which is a signal the shares are now wildly overvalued.
Market statistics are displayed on a screen at the New York Stock Exchange on Friday.ANGELA WEISS/Getty Images
All this is said in the light of the continued uncertainty about U.S. trade policy.
The Trump administration has been trying to impose a new trade regime as quickly as possible, but new agreements with other nations are slow in coming.
The Fed meeting may offer drama
Meanwhile, it is a light week for earnings reports, and only the Federal Reserve meeting on Tuesday and Wednesday is a particularly key event to watch.
U.S. markets are scheduled to be closed Thursday for the Juneteenth holiday.
What happens at the Fed may cause some volatility. Trump keeps demanding that the central bank cut its key Federal Funds Rate, now at 4% to 4.5%.
Earnings this week will start with one of the nation's biggest homebuilders, Lennar (LEN) , whose business has been struggling from 30-year mortgage rates at just under 7%. In the first quarter the company spent 13% of sales just working to reduce initial mortgage payments to close sales.
Earnings are estimated at $2.60 per share, down 23% from a year earlier. Revenue is predicted at $8.55 billion, down 2.5%.
The big day is Friday when consulting giant Accenture (ACN) reports third-quarter results before the bell. The company's future has been roiled by the Department of Government Efficiency efforts to chop federal spending. The company warned in its second-quarter analyst call that sales and profit would probably drop because of the Doge cuts.
The shares are down 11.3% year to date and 22% from an intraday peak of $385.35 on Feb. 5. Accenture still has a market cap of nearly $200 billion.
Along with Accenture, supermarket giant Kroger (KR) will report. Revenue is expected to be down slightly at $45.2 billion. Earnings are seen rising 7.8% to $1.54. The shares are up 7.2% on the year at $65.66. They were even up 0.8% on Friday.
Used-car giant CarMax (KMX) also reports on Friday, with earnings expected at $1.27, up nearly 30% from a year earliere. The revenue estimate is $7.46 billion, up nearly 5%. The shares are down 20.5% year-to-date.
