2025 a Strong Year for 'Buy the Dip' in ETFs: 5 Future Drivers

Investors who have embraced the "buy the dip" strategy in 2025 have been handsomely rewarded, with the S&P 500 delivering its strongest post-pullback returns in over three decades.

S&P 500 Posts Best Post-Dip Gains Since 1993

According to research from Bespoke Investment Group, the S&P 500 has gained an average of 0.36% in the trading session following a down day so far in 2025, as quoted on Yahoo Finance. The only year with a comparable performance was 2020, which saw a 0.32% average post-dip gain.

Tariff Rollbacks: Key Driver of 2025’s Rebound Rallies

A recent example came on May 27, 2025 when the S&P 500 surged more than 2% after falling 0.7% in the final session before the holiday weekend. The rally was sparked by President Trump’s decision to scale back huge previously threatened tariffs on EU —a recurring catalyst behind many of 2025’s rebound rallies.

Factors to Favor Wall Street Rally Ahead

Below we highlight a few factors that could boost Wall Street ETFs higher ahead.

Trade Court Blocks Trump Tariffs

On May 28 evening, a panel of judges from the US Court of International Trade ruled against key elements of Trump's trade agenda. The court struck down global tariffs imposed under emergency powers, calling them unlawful. While the decision is a setback for Trump's policies.

SPDR Dow Jones Industrial Average ETF Trust DIA added 1.1% premarket on May 28, while SPDR S&P 500 ETF SPY advanced 1.5%, Invesco QQQ Trust QQQ gained 2% and iShares Russell 2000 ETF IWM jumped 1.9%.

NVIDIA Earnings Impress Despite China Challenges

NVIDIA NVDA beat revenue expectations but missed on adjusted earnings per share (EPS), citing the impact of a US government ban on the sale of its H20 chips to China. The company warned it could lose as much as $8 billion in sales next quarter due to the restrictions.

Despite this, NVIDIA’s stock surged 6.3% in premarket trading on May 28. During the earnings call, CEO Jensen Huang criticized the US chip curbs, arguing they incentivize innovation among Chinese competitors and undermine the U.S. position. “China’s AI moves on with or without US chips,” Huang said. “The question is whether one of the world’s largest AI markets will run on American platforms.”

Inside Big Tech Resilience

NVIDIA’s performance gave Wall Street renewed hope that major tech companies can weather the uncertainties surrounding Trump’s trade measures, even as export restrictions create new challenges.

While the tech sector is still recovering from a pullback in February—triggered in part by market reactions to low-cost AI DeepSeek—this hasn't derailed investor optimism. Instead, the pullback caused some valuation corrections and set the stage for renewed focus on U.S. tech leadership and AI investment.

According to Bank of America, the current earnings cycle confirms that hyperscalers are continuing with their AI investment strategies, even if capex growth is moderating slightly (read: Why Big Tech ETFs Still Remain Great Bets).

Retail Investors’ Faith in Wall Street

Retail participation has been a major force behind the renewed strength in Wall Street. Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance that their customers bought heavily during April. “Buy the dip” has been working for them for the past few years. Since the market’s most recent bottom on April 8, the S&P 500 has climbed nearly 19%.

JPMorgan quantitative strategist Emma Wu reported that retail investors poured over $50 billion into U.S. equities from April 8 onward—surpassing the $46 billion seen between March and June 2020, as quoted on Yahoo Finance.

The week following Trump’s April 2 “Liberation Day” tariff announcement saw record dip-buying flows, including $3 billion in net purchases on April 3—the largest single-day retail buying total since VandaTrack began tracking such data in 2014.

Upbeat Q1 S&P 500 Earnings; Brighter Outlook if Court Blocks Tariffs?

Total Q1 earnings for the 477 S&P 500 members that have reported results are up +11.4% from the same period last year on +4.4% higher revenues, with 74.2% beating EPS estimates and 62.9% beating revenue estimates, per Earnings Trend.

However, trade tensions have weighed on estimates so far. Note that total S&P 500 earnings for the June quarter are expected to be up only +5.5% year over year on +3.8% higher revenues, with a broader and greater pressure on estimates relative to other recent periods.

Q2 earnings estimates for 15 of the 16 Zacks sectors are down since the quarter got underway, with Aerospace as only exception. The Tech sector’s estimates are down since the start of the period, but they have notably stabilized in recent weeks. Against this backdrop, court ruling may brighten the scenario.

Any Wall of Worry?

Despite a short-term market boost, long-term uncertainty over Trump’s tariffs continues to weigh on business confidence. Note that Trump administration immediately appealed the ruling.

Companies are delaying hiring, investment, and wage decisions, while investors shift to short-term strategies amid policy volatility. The lack of clarity threatens broader economic growth and keeps the Fed in a wait-and-see mode.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research