Buy The Dip Now? Experts Caution That While 'Corrections Like This Are Normal,' Global Shares 'Look Vulnerable to Further Falls'

Financial strategists have urged investors to proceed with caution as the global stock market faces a sell-off. The advice comes amid fears that shares could potentially fall even further.

What Happened: On Friday, U.S. stocks started August with a downturn, as new data sparked concerns of a deteriorating economic outlook, CNBC reported. The ISM manufacturing index, a crucial indicator of U.S. factory activity, came in at 46.8%, signaling economic contraction and surpassing expectations for the worse. This weak data has led investors to worry that the Federal Reserve may be behind in reducing interest rates to avert a recession.

European stocks fell around 1.6% on Friday morning, following a decline on Wall Street. In Asia, Japan’s benchmark indexes dropped over 5% on Friday, marking the Nikkei index’s worst day in over four years.

Cedric Chehab, global head of country risk at research firm BMI, attributed the souring market sentiment to a mix of factors, including the hawkish Bank of Japan, poor U.S. manufacturing data, and employment sub-indicators that spooked markets. However, he emphasized that “corrections like this are absolutely normal.”

Despite the sell-off, Chehab reassured investors that there was no need to panic, citing significant support from moving averages and key technical levels. He also reminded investors of the typical seasonal rise in equity market volatility between July and October.

Shane Oliver, head of investment strategy and chief economist at investment management firm AMP, added that global shares "look vulnerable to further falls suggesting that it's too early to buy the dip just yet."

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Market attention is now shifting to the closely watched nonfarm payrolls report, with investors seeking insights into the pace and scale of Fed cuts in the coming months.

Why It Matters: The ongoing sell-off in the global stock market has been linked to several factors. U.S. stocks were primed for more losses on Friday as traders awaited the key non-farm payrolls report. The tech stocks, which had led the stock market rebound since early 2023, have come under pressure since early July, with the weakness more concentrated in the semiconductor space.

This was due to some sore data points, including weak manufacturing activity data and a spike in jobless claims. These data points added weight to the view that the economy is slowing down and could potentially face the risk of a hard landing.

The Federal Reserve Chairman Jerome Powell and his team have hinted at beginning rate cuts as early as the September meeting. This could bring the spotlight to the SMID-cap stocks, which have underperformed the broader market in the bull run seen since 2023, accelerating the rotation out of mega-cap techs.

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Image via Midjourney

This story was generated using Benzinga Neuro and edited by Pooja Rajkumari