- The bull market in stocks is alive even as investors fret over numerous headwinds.
- Stocks dropped last week over Fed rate cut concerns and rising tensions in the Middle East.
- But there are signs stock's long-term bull market is intact, Wall Street experts say.
Investors have grown jittery over the trajectory of stocks in recent weeks, but the bull market hasn't been derailed, Wall Street veterans say.
US stocks have skidded lower over the past week as investors digested escalating Middle Eastern conflict and monetary policy concerns. Major indexes dropped last week after inflation came in hotter-than-expected in March, causing investors to dial back their expectations for rate cuts in 2024. Stocks took another hit after Iran attacked Israel over the weekend, with investors flocking to safe havens like US Treasurys.
But the latest concerns may be minor blips in the face of a booming US economy and the potential uplift from artificial intelligence, meaning the bull market in stocks is still far from over, some veteran investors say.
Here's why four Wall Street pros say investors shouldn't sweat over the latest pullback in stocks:
Tom Lee, Fundstrat Head of Research
Investors should buy the dip in stocks, as the March inflation report wasn't as bad as it seems, according to Fundstrat's Tom Lee.
In a recent video update, Lee noted that more components of the consumer price index saw year-over-year price increases of less than 3%. That's a promising sign that inflation is on track to fall to the Federal Reserve's 2% price target, even if prices overall for the economy came in hotter-than-expected last month.
Headline inflation was mainly driven by a surge in auto insurance, he added. That suggests a June rate cut is still possible, he said, though markets have mostly taken that possibility off the table, according to the CME FedWatch tool.
"Believe it or not, this was actually a very good CPI report," Lee said. "It just tells you that this is a timing issue, it's not structural. In other words, nothing else is causing hotter CPI."
James Demmert, Main Street Research CIO
Stocks are still in the midst of a longer-term bull market, and the recent correction represents the latest buy-the-dip moment for investors, Demmert said.
"A stock market correction is unfolding right now triggered by Middle East tensions, rising bond yields, and worries about delayed Fed rate cuts. Stocks have been due for a pullback for quite some time as it has been 6-months since we've seen a pullback of 8-10%," Demmert said in a note on Tuesday.
The size of the pullback will depend on whether Middle East tensions continue to escalate, but even rising tensions can't derail the bull market, he suggested.
"We are buyers of this stock market correction because while the headlines are scary right now, we believe we have entered a new bull market led by the power of artificial intelligence," Demmert said. "This new bull market can last for another 7-9 years, as AI is expected to drive significant productivity gains for companies across the board, which will strengthen corporate earnings."
Dan Ives, Wedbush Securities analyst
Tech stocks will keep soaring despite recent headwinds, as corporate earnings are poised to come in strong over the first quarter, Ives said.
According to surveys conducted by Wedbush, consumer spending and digital advertising growth trends look "strong" among internet companies over the first quarter. That could be bullish for tech titans, including companies like Alphabet, Amazon, and Meta, Ives said.
Wedbush is also expecting a huge wave of AI spending to boost stocks. The firm anticipates $1 trillion of AI investment over the next decade, with the second, third, and fourth wave of spending poised to hit the sector in the coming years.
"We believe the recent risk-off environment and tech sell-off represent a clear buying opportunity into this upcoming tech earnings season," Ives and other analysts said in a note on Sunday. "While a hot CPI, weak bank earnings, and geopolitical worries has put pressure on stocks, now the Broadway stage and bright lights are focused on a key tech earnings season ahead which we believe will be strong across the board."
John Flood, Goldman Sachs' head of Americas equities sales trading
Stocks still look poised to move higher by the end of the year, Flood said this week. He pointed to a handful of positive catalysts that lay ahead of the market, including a historical post-tax season surge, rising corporate stock buybacks, and strong confidence indicated by inflows to money market funds.
"There 's still plenty of dry powder out there," Flood said, pointing to the $1.6 trillion inflow to money market funds since 2023.
Stock sentiment also isn't at extreme bullish levels yet, a promising sign that a major pullback isn't imminent, he said.
Stocks could surge another 15% this year, Goldman strategists said in a previous note. That's due to "exceptionalism" in mega-cap tech stocks, which they predicted could push the S&P 500 to 6,000 by the end of the year.