Ahead of the Tape: J.P. Morgan's Leader Dimon Shows How Buying the Dip Is Done -- WSJ
February 10 2017 - 3:03AM
Dow Jones News
By Steven Russolillo
James Dimon can savor his martini this weekend.
Saturday marks the first anniversary of the J.P. Morgan Chase
& Co. boss's big bet on the bank's stock. With the market down
more than 10% at this point last year and J.P. Morgan shares down
20%, Mr. Dimon bought $26.6 million worth of his company's
shares.
Mr. Dimon's purchase marked the bottom in bank stocks and the
market overall, and the start of a strong rally, especially in bank
shares. The S&P 500 has surged 26%, including the sharp
postelection bump, and hovers near record highs. Financials have
been the best-performing sector, up more than 40%. J.P. Morgan
itself is up 62% since Mr. Dimon added to his already substantial
holdings.
The trade earned the CEO a roughly $17 million paper profit.
If the eight-year bull market has taught investors anything, it
is that "buying the dip" has been an extremely profitable exercise.
The S&P 500's 11% drop at the beginning of last year was fully
recovered by the end of March. And after that, there were two
separate instances in which the S&P 500 fell 5%; one was in
June and the other was before the election. Both times, the market
regained its losses within weeks.
An even longer time frame tells a similar story. Since Black
Monday in 1987, the S&P 500 has suffered 21 separate pullbacks
of at least 10%, according to Strategas Research Partners. Those
declines include the bursting of the tech bubble and the financial
crisis as well as other, non-bear-market-related declines.
Collectively, these pullbacks have averaged about a 19% decline and
have lasted roughly three months. The financial crisis as a whole
was an anomaly, with shares falling more than 50% and taking six
years to recover.
The recovery, whenever it comes, is usually strong. Following
all but one of those 21 pullbacks, the S&P 500 gained more than
10% just three months later, averaging a 16% gain. "These are
buying opportunities," says Strategas analyst Nicholas Bohnsack.
Even during the financial crisis, there were several dips worth
buying.
There have been no dips to buy on recently. Through Wednesday's
close, the S&P 500 went 82 trading days without a one-day drop
of at least 1%, the longest such streak since 2006, according to
Bespoke Investment Group. The CBOE Volatility Index, or VIX is
around 11, below all but 1% of readings throughout its history.
It is inevitable volatility will pick up again. And when it
does, buying the dip will likely be a fruitful exercise. Just ask
Mr. Dimon how that has worked out.
Write to Steven Russolillo at steven.russolillo@wsj.com
(END) Dow Jones Newswires
February 10, 2017 02:48 ET (07:48 GMT)
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