'Overdue' pullback in US stocks to test dip-buyers' resolve
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The S&P 500 is down more than 5% from its March 28 closing high, its biggest retreat since October. The index has experienced an average of three pullbacks of 5% or more every year since 1929. Many market participants believe the factors that drove the S&P 500 to a 10% gain in the first quarter, including resilient economic growth and excitement over artificial intelligence, remain in place and will support stocks over the long term. Some investors are already buying on weakness, while others are waiting for more clarity on inflation, geopolitical tensions, and corporate earnings. The S&P 500 has seen an average maximum drawdown of 11% each time it has gained 10% or more in the first quarter. Clients of BofA sold $800 million in US equities in the latest week, the third straight week they were net sellers. Some volatility-sensitive funds that bought equities as markets marched higher have already started selling and could dump more stocks if markets grow more turbulent. Investors are also watching the level of the Cboe Volatility Index. The coming week’s earnings from Tesla, Meta Platforms, Alphabet, and Microsoft could offer support to stocks or further exacerbate the selloff. The earnings picture has been mixed so far. Investors will also focus on Friday's release of the monthly Personal Consumption Expenditures Price index, a crucial piece of inflation data before the Fed's April 30-May 1 meeting. Investors are pricing in around 40 basis points of interest rate cuts this year, compared to 150 priced in at the start of 2024.



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