Stocks — in particular U.S. technology stocks — are down in 2025. Year to date, the S&P 500 is down 3%, and the NASDAQ-100 is down 7.6%. The TSX is actually currently up 1.6%, but that’s little consolation to Canadian investors, many of whom hold U.S. stocks.
The question for investors here is, should you buy the dip?
The lower stocks go, the higher the expected future returns. Stocks are down somewhat this year but aren’t exactly in a bear market. Given the expensive nature of stocks these days — the S&P 500 is at nearly 30 times earnings — it’s natural to wonder whether we have lower still to go.
So, should you buy the dip? In this article, I explore that question, ultimately concluding that it depends on what you buy.
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U.S. tech
In my opinion, buying the dip in U.S. tech is not a good idea. The big U.S. tech stocks are still rather pricey. Below, you’ll see the price-to-earnings (P/E) ratios for the Magnificent Seven U.S. tech stocks. The average is 39. The market cap weighted average may be higher, as especially pricey names NVIDIA, Apple, and Microsoft have higher multiples than cheaper ones like Google (Alphabet) and Meta Platforms.
- Apple – 31.
- NVIDIA – 39.
- Microsoft – 31.
- Google – 20.
- Meta – 24.
- Amazon – 35.
- Tesla – 98.
Again, the average of these P/E ratios is 39. That’s an extremely high multiple for large-cap companies to trade at. Also, many of the companies just named are seeing their earnings and cash flow growth slow down. Google’s free cash flow peaked in 2021, Tesla has been declining for two years, and Apple’s earnings barely budged last year. It’s not an appealing picture.
Canadian stocks
Canadian stocks, broadly, look more attractive than U.S. stocks today. The large Canadian companies are certainly cheaper than their U.S. peers. Take Toronto-Dominion Bank (TSX: TD), for example. The stock is quite cheap, trading at 11 times adjusted earnings, 19 times reported earnings, 2.8 times sales, and 1.3 times book. This is quite a bit cheaper than the big U.S. banks, which average about 15 times earnings these days. TD Bank got beaten down for a reason (fine and asset cap imposed by U.S. regulators), but it is recovering nicely this year. Also, Canadian banks, in general — including those with no major issues in their recent histories — are slightly cheaper than U.S. banks.
Global stocks
If there’s one category of equity that I can recommend without qualification this year, it’s global stocks. Chinese and European stocks are absurdly cheap due to having underperformed in the North American markets for the last five years. Chinese stocks are at about 14 times earnings these days; E.U. stocks also trade at a discount to the North American markets.
In the past, people justified the U.S.’s valuation premium because it was the only country doing anything in generative artificial intelligence (AI). However, China made some breakthroughs in that field recently, calling into question the wisdom of demanding a discount when buying Chinese tech. Europe, too, has a lot of good AI researchers — although, in that case, the feasibility of turning the research into profitable companies is impeded by regulations. Nevertheless, Europe has great companies in finance, energy, and consumer discretionary. So, it’s worth a look.
