‘Buy the Dip’ Is Losing Favor: Traders Shift to New Market Strategies in 2025

Key Takeaways

• Despite major declines in U.S. stocks, investors are holding back, expecting further drops post-earnings.
• However, the ‘buy the dip’ strategy isn’t the most favored one.
• High-yielding defensive stocks and cash equivalents can offer income without the risk of deeper losses.

U.S. stocks have taken a hit, but investors aren’t rushing to “buy the dip.”

The S&P 500 is down 16% from its February high, and the Magnificent Seven have dropped nearly 30%.

Even with Big Tech earnings coming in stronger than expected, most traders are staying cautious, waiting to see how the dust settles.

Caution Replaces Optimism

Options markets reflect this shift in investor behavior.

The ratio of bullish calls to bearish puts on leading tech names has dropped to its lowest level since late 2023, a clear signal that investors aren’t expecting a quick rebound.

Even U.S. safe-haven assets are under pressure. Treasury bonds and the dollar, typically beneficiaries of market stress, have slid alongside equities.

In contrast, German Bunds are seeing renewed demand, with yields falling to their lowest since 2022, as Europe looks increasingly attractive to global investors.

Are U.S. Stocks Cheap Yet?

Market bulls briefly perked up on rumors of a 90-day tariff pause, but optimism faded quickly after a White House denial. The sell-off resumed, driven by concerns that tariffs could trigger a deeper, longer-lasting downturn.

Measured by historical standards, the correction has room to run. The S&P is well below its February highs, but still far from the panic levels seen during 2018’s 20% dip, 2020’s 33% crash, or the 57% collapse during the 2008 financial crisis.

Valuations remain a sticking point. The S&P’s forward price-to-earnings ratio is back to pre-pandemic levels but remains elevated compared to long-term averages.

According to columnist Robert Armstrong , many analysts haven’t adequately revised earnings estimates to reflect the potential fallout from tariffs.

If you believe fiscal tightening is coming, current valuations may not signal good value. More worryingly, earnings estimates haven’t fully factored in potential tariff damage, meaning the “E” in PE may be overstated,” he wrote.

FactSet data shows 2025 earnings forecasts for S&P 500 companies have dropped only 7% since last September — a modest adjustment given the macro headwinds.

More Downside Risk Ahead

Another lens is the cyclically adjusted earnings yield (CAPE).

Though it’s improved recently, it still doesn’t scream “cheap.“ Similarly, rising discount rates — reflecting future cash flows’ value — suggest further downside risk.

UBS’s HOLT team notes that tariff-driven uncertainty pushes up discount rates, which in turn lowers equity valuations

Every 1% increase in discount rates can slash equity prices by as much as 20%, a trend that’s played out during past protectionist cycles.

Big tech has taken the brunt of the tariff sell-off, but its prices have only erased a year’s worth of gains—hardly a fire sale.

“So no, stocks aren’t cheap. But if tariffs escalate, we may get there.”

What Smart Money Is Doing

Institutional investors aren’t betting on a swift turnaround. Many have rotated out of speculative names and into safer territory.

Bill Gross, the former bond king, warned that this isn’t just a routine correction. He likens the current environment to the structural realignments of the 1970s, when the gold standard ended and markets were forced to reprice long-held assumptions.

Gross isn’t buying the dip, he’s focused on steady yield. His portfolio leans into high-dividend defensive stocks like domestic telecoms and tobacco companies, many of which yield 7–8%. He’s also holding a substantial position in cash-like assets.

“My cash portfolio yields 4.3%, and it doesn’t go down,” he said.

As more investors take a similar stance, the message is clear: in times of deep uncertainty, defense may be the best offense.