U.S. stocks have been a sea of red over the past two weeks, but better times likely lie ahead. - Agence France-Presse/Getty Images
U.S. stocks have been having a rough go of it lately. But history shows that investors who have the temerity to buy when the market is falling are often rewarded — provided they have the patience to wait out any further weakness that might follow.
For any investors wondering about when might be a good time to start putting money to work in U.S. stocks, Warren Pies of 3Fourteen Research has some thoughts.
Pies is something of an expert on stock-market pullbacks. More than a year ago, he and his team extensively examined every stock-market pullback since 1950. They revised that work in a report shared with MarketWatch on Friday, which included some additional up-to-date insights.
Since 1950, 3Fourteen has identified 128 instances where the S&P 500 SPX retreated by 5% or more from a rolling three-month high. Most of the time, investors willing to risk it and buy these pullbacks were quickly rewarded. However, more than 40% of the time, the dip snowballed into a correction, or something even more serious.
Of the 42 corrections that Pies found, nearly 60% went on to become serious corrections. This appears to be a major tipping point, because once a selloff entered “serious correction” territory — defined by Pies and team as a pullback of between 15% and 20% — the probability that a bear market, defined as a drop of 20% or more from the highs, would ultimately follow rose to near 70%.
Pullbacks 1950-Present
Pullbacks
Corrections
Serious Corrections
Bear
Cases
128
52
30
20
%
N/A
41%
58%
67%
Source: 3Fourteen Research
With the S&P 500 once again flirting with its 200-day moving average on Friday, Pies believes it makes sense for investors to wait a little bit longer before jumping back in.
To help guide their clients’ decision-making, Pies and his team developed a checklist that they said has helped determine in the past whether a dip is “buyable,” or not.
Their list features seven criteria, including: distance away from a recession; where the S&P 500 was trading relative to its 150-day simple moving average; what percentage of the index’s constituents were trading above their respective 200-day moving averages; the price-to-earnings ratio of the index; the yield differential between 2-year BX:TMUBMUSD02Y and 10-year Treasury notes BX:TMUBMUSD10Y; the level of the Cboe Volatility Index VIX; and, finally, what’s happening with the 10-year yield.
What Makes a Dip Buyable?
Factor
Buyable Dip?
Correction
Current
Recession distance
43 months
26 months
Yes
SPX vs. 150-day simple moving average
>55%
>39%
No
% of SPX trading above 200-DMA
55%
49.5%
No
SPX price-to-earnings ratio
16.7
17.7
No
2y/10y yield curve
+93 basis points
+48 basis points
No
VIX
23
26
Yes
10-year yields
Falling
Rising
Yes
Source: 3Fourteen Research
As reflected in the list above, conditions in the market right now aren’t exactly ideal. The S&P 500 has breached its 150-day average, valuations look stretched (although Pies and his team believe the valuation signal might not be quite as relevant this time around), the Treasury yield curve is relative flat, and breadth beneath the surface of the index is weak.
As of Thursday’s close, only three of the seven criteria had been met, Pies said. Yields have fallen, offering some economic stability. The VIX has remained below 25. And, most important, Pies and his team don’t expect a recession on the horizon.
This is why Pies would advise waiting another month or so for the market to reach a buyable bottom. He expects the volatility that has stricken markets over the past couple of weeks will likely persist through March as investors face down the coming Federal Reserve meeting, which is set to conclude on March 19, and the annual drain on banking-sector liquidity which typically occurs ahead of the April U.S. tax-filing deadline.
“Clients who followed our guidance to reduce risk earlier in the year should look to add back exposure over the next couple of months … but not quite yet,” Pies said in a report shared by MarketWatch.
Pies was among a minority of strategists on Wall Street who anticipated that a growth scare might arrive to rattle investors early in 2025.
Data from J.P. Morgan Securities has shown that individual investors in particular have eagerly bought every dip so far in 2025. Unfortunately, investors pursuing this strategy might have jumped the gun.
Pies ran the numbers and found that the period between the end of the 2008 financial crisis and the stock-market peak in late 2021 was the “golden era of dip buying.”
From 2009 to 2021, only 30% of pullbacks became corrections or worse.
Market Correction Statistics
Time Period
Pullbacks
Corrections
Serious Corrections
Bear Markets
Pre-financial crisis (1950-2008)
99
42
24
18
%
N/A
42%
57%
75%
2009-2021
23
7
4
1
%
N/A
30%
57%
25%
2022-present
6
3
2
1
%
N/A
50%
67%
50%
Source: 3Fourteen Research
The biggest difference between the post-financial-crisis period and today? According to Pies, stubborn inflation has removed the “Fed put” from the market. Before 2022, dip buyers could rest easy — confident that, if anything seriously bad happened in the market, the Fed would swiftly ride to the rescue.
In an era of above-target inflation, that is no longer the case — although Pies pointed out that the current pullback looks like something of a throwback to the “golden era” days, given that yields have fallen alongside stocks. Bond yields move inversely to bond prices, meaning the drop in yields has helped cushion balanced portfolios from some of the pain in equities.
Uncertainty surrounding the economic blowback from President Trump’s latest tariffs has been widely blamed for the selloff. Earnings from companies important to the artificial-intelligence trade have also failed to impress, contributing somewhat to the broader market’s weakness.
