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Growth stock: Is it time to buy the dip?

By Joseph Toppe

19:31, 21 July 2022

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In this article:
AAPL
Apple
140.97 USD
-2.27 -1.590%
META
Meta Platforms Inc.
113.95 USD
-0.64 -0.560%
TSLA
Tesla
173.78 USD
-6.08 -3.390%
XLU
Utilities Select Sector SPDR Fund
70.80 USD
-0.35 -0.490%

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Growth stocks
Will traders begin to buy the dip on growth stocks?

Now that inflation has peaked and Wall Street has priced-in a short recession for the second half of 2022, investors could make a return to growth stock and buy the dip ahead of the industry’s predicted rebound, says analysts.

Largely made up of stocks from tech companies like Tesla (TSLA), Apple (APPL), Amazon (AMZN), and Meta Platforms (META), the growth stock sector is known for generating revenue and profits faster than the industry average while also providing larger returns.

Growth stock: Buy the dip, abandon Utilities?

While speculative companies can be a gamble during economic downturns or recession, Utilities (XLU) stocks in water, gas, and electric remain in high use and are often a haven for traders.

David Jones, chief market analyst for Capital.com, said “Utilities may still have a place for the more cautious over the second half of the year, but growth stocks could start to perform once again.”

“It all hinges on whether investors think we have seen the worst of market slides this year,” he finished.

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Utilities (XLU) price chart

How-to ‘Buy the Dip’

Buying an asset after it has dropped in value, while anticipating the stock price will rise again to ‘buy low and sell high’, is a strategy known as ‘buying the dip’.

In an interview with Capital.com, Edward Moya, senior market analyst for OANDA in New York, said “Wall Street is known to embrace the strategy, as it buys stocks on weakness.”

AMZN

88.53 Price
-0.050% 1D Chg, %
Long position overnight fee -0.0064%
Short position overnight fee -0.0059%
Overnight fee time 22:00 (UTC)
Spread 0.16

AAPL

140.97 Price
-1.590% 1D Chg, %
Long position overnight fee -0.0064%
Short position overnight fee -0.0059%
Overnight fee time 22:00 (UTC)
Spread 0.29

TSLA

173.78 Price
-3.390% 1D Chg, %
Long position overnight fee -0.0308%
Short position overnight fee -0.0137%
Overnight fee time 22:00 (UTC)
Spread 0.39

XPEV

11.09 Price
-6.050% 1D Chg, %
Long position overnight fee -0.0308%
Short position overnight fee -0.0137%
Overnight fee time 22:00 (UTC)
Spread 0.06

“Buying the dip works beautifully in bull markets,” he continued. “Right now, traders are still skeptical on the outlook for stocks and are trying to fade all rallies.”

“If we are close to seeing the peak in yields and inflation, the growth stock rebound will keep going,” he added.

Inflation timeline: The worst is over?

Stocks wilted following the latest US Consumer Price Index report on 13 July showing inflation reached a 41-year high, placing even more pressure on the US Federal Reserve to raise interest rates fast enough and high enough to rein in inflation – without triggering a recession.

Derek Horstmeyer, a George Mason University finance professor, told Capital.com “The attitude is shifting now that we’ve seen the highest inflation number.”

“Investors are beginning to feel more confident going back into high duration assets (tech companies), especially since we know the rate path for the Fed will probably peak out at ~4%,” he finished.

 

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

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