Is it time to "buy the dip" in US stocks? Experts suggest buying on dips, with the S&P 500 expected to break through 5400 points

Zhitong Finance learned that Sinead Colton Grant, Chief Investment Officer of the Wealth Management Department of BNY Mellon Bank in New York, stated that the U.S. stock market's retreat from the historical high set at the end of last month has provided cash-holding investors with a buying opportunity. She said that after a 24% rise in 2023, the S&P 500 index surged 10% in the first quarter, marking the best start since 2019. The consecutive three weeks of sharp declines were seen as a healthy consolidation for traders. Starting from now, Colton Grant expects that based on strong earnings growth and sustained economic momentum, this uptrend will not only recover but also expand, potentially pushing the S&P 500 index above 5400 points by the end of 2024.

In an interview, she said: "There have been many historical examples where investors waited to find the absolute low point but missed the opportunity, so if you have funds to allocate, now is a good time to start increasing exposure. This is an attractive market, and the worst thing for investors is to hold cash entirely."

BNY Mellon Bank's Wealth Management Department has increased its holdings of U.S. large-cap stocks and prefers them over international and emerging market stocks. Despite the higher price-to-earnings ratio of the U.S. stock market compared to other markets, Colton Grant mentioned a preference for the free cash flow generated by large companies, especially in the technology, healthcare, and industrial sectors.

The S&P 500 index is expected to decline for the third consecutive week due to a series of hot inflation reports, leading investors to lower their expectations of a rate cut by the Federal Reserve. Atlanta Fed President Raphael Bostic reiterated on Thursday that he believes it is inappropriate to cut rates before the end of the year.

However, BNY Mellon Bank's rate cut expectations have always been lower than the market's expectations for the magnitude of rate cuts this year. While investors expect six rate cuts, the bank's forecast is for four cuts. Currently, the bank only expects the Fed to cut rates once in December. Colton Grant stated: "We are seeing the market react for the first time to a real reduction in rate cut expectations, and I think this is healthy." She pointed out that at the beginning of the year, as traders reduced their rate cut bets, the stock market hardly reacted.

Earnings reports are crucial for the stock market to rise from its current levels. BNY Mellon Bank's Wealth Management Department expects U.S. stock earnings to grow by 11% in 2024. Colton Grant believes that whether the Fed cuts rates is not important. She said that since the financial crisis of 2008, interest rates have been close to zero for most of the time, and there is a view that the stock market needs rates close to zero and inflation close to 2% to perform well. However, she finds this logic flawed Colton Grant said, "The stock market can perform well within a range of 2% to 4% inflation, and our current inflation rate is indeed between 2% and 4%. When our inflation rate exceeds 5% and moves towards double digits, problems arise, as in 2022. However, we believe that the current environment is actually quite favorable for the stock market."