By Jacob Sonenshine

The market rally has to take a break sometimes. Stocks are taking it on the chin Tuesday: Long-term investors should start think about buying into dips.

The S&P 500 slid about 1.5% from its record close of 6501 Friday to around 6400 Tuesday morning, Traders are selling and taking profits after the index had notched a 16% year-to-date gain through Friday.

The drop has largely been driven by tech worries: China's Alibaba Group Holding is now developing an artificial intelligence chip, posing a threat to leading chip makers like Nvidia. Tech companies expected to benefit from selling new AI-powered software offerings -- Microsoft, Oracle, Amazon.com, and Alphabet -- saw their shares fall, too.

The silver lining: If the market falls a bit more, investors will have another chance to jump into what is likely still a bull market. The S&P 500 should keep chugging higher, thanks to the potential for continued earnings growth. The economy is still growing, which the Fed will support by cutting interest rates in September and possibly beyond then.

Consistent with the narrative of long-term earnings growth, investors should remember that Big Tech companies are just in the early stages of benefiting from AI. Their earnings should grow for years to come, particularly as data-center investment continues -- driving higher chip demand -- and as companies and consumers keep adopting the digital and software capabilities of AI.

So lower stock prices could be a good thing: They'd better reflect the risk to profits. Right now, the S&P 500 trades at just over 22 times estimated aggregate earnings for the next 12 months, just below the peak of the AI era that kicked off in early 2023. If the S&P 500 falls to 6238 -- a key level -- it would trade at just over 21 times, a multiple that is closer to the middle of the AI era's range.

The 6238 level is key because that is where buyers rushed in -- and stabilized the index -- in early August after a mild drawdown. If Tuesday's losses moderate, it means the selling pressure is abating and that a level near 6238 should hold again. If the index starts to drop toward roughly that area, it could present an opportunity for investors that want to buy more stock.

If the market has enough downward momentum that 6238 doesn't hold, investors should be ready to buy at roughly 6000. Buyers came in around that level to support the index in January and February, and then again in June.

The 6000 level is also right around the 200-day moving average of 5960 . The S&P 500 almost always stabilizes at its 200-day moving average if there isn't a major unforeseen catalyst, such as the onslaught of brand new tariffs earlier this spring.

Look for an opportunity to buy stocks -- it could come soon.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 02, 2025 13:59 ET (17:59 GMT)

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