Why This Sudden Market Pullback Is A Buying Opportunity — And 4 Ways To Capitalize On It

A mild market selloff shouldn't keep investors from looking for attractive investments.

Javier Ghersi/ Getty Images

• Equities started the year on the wrong foot as an end-of-year slump carried over.
• However, Truist's top market strategist believes markets are overreacting.
• Investors should stow their money in four top places before a recovery.

US stocks have hit a rough patch in the last month, and investors should be grateful about it.

Concerns about higher-for-longer interest rates in the face of a hot jobs report and the potential for persistent inflation have sent the S&P 500 tumbling 4.5% from its early December peak.

But this pullback will end up being a buying opportunity for those with strong stomachs, according to Keith Lerner, the chief market strategist at Truist.

"Pullbacks are always uncomfortable but are the admission price to the market," Lerner wrote in a recent note, echoing a statement he'd made during dips last year.

Markets garnered significant momentum following Donald Trump's win, which many thought would mean lower corporate taxes and a pro-business regulatory backdrop. That enthusiasm has waned, and the S&P 500 now isn't much higher than where it ended on Election Day.

Although this downturn wasn't welcome, some strategists thought it was warranted, considering how far stocks had rallied. The consensus among Wall Street firms was that the S&P 500 would score another double-digit gain this year, even after back-to-back years of 23% to 24% gains.

"When expectations are high, a little bad news can go a long way," Lerner wrote.

Truist

By taking a step back now, Lerner believes stocks can advance more meaningfully later in 2025.

"We are seeing a reset of market prices and sentiment, which had become stretched on a short-term basis, though it is still within the confines of an ongoing bull market," Lerner wrote.

History says most selloffs don't last

No one likes watching their hard-earned gains evaporate, but it's crucial to keep downturns in perspective.

The S&P 500 has fallen 5% or more 30 times since March 2009, which is roughly two such selloffs a year. Even still, the index is up 1,087% including dividends since that point in the recovery from the financial crisis, so the opportunity cost of selling would have been massive.

Truist

When US stocks have slid at least 5% in the last 16 years or so, their trough typically comes after a 7.5% loss over 28 days, according to Truist. The latest reset has been close to 5% in a 36-day span, which leads Lerner to believe it's already at least halfway over.

Another silver lining is that key parts of the market have already been battered. Small caps are off 10% from their highs, and the typical S&P 500 stock — as measured by the equal-weight version of the index — has retreated 7%, Lerner noted. That means pain could be priced in.

4 ways to invest in a hotter-than-expected economy

Investors are antsy about the economy's strength, in the exact opposite way as two years ago.

Better-than-anticipated job additions mean that the Federal Reserve likely won't be in any rush to cut rates. In fact, there are some on the Street who worry the Fed's next move will be a hike.

While bull markets need a healthy economy, lower rates are a key part of optimists' base case. The market is trading at a lofty valuation, and if rates remain elevated for six or more months, investors may reconsider whether it's wise to pay such a premium for future corporate earnings.

However, Lerner believes the market is overreacting to fears about higher-for-longer rates.

"We would prefer a stronger economy with fewer rate cuts than a weaker economy that requires more aggressive rate cuts," Lerner wrote.

The US economy is humming along, but it doesn't seem to be at risk of overheating. Truist's 2025 forecast for US GDP growth is 2.5%, which should power solid earnings growth. That arguably should be investors' focus ahead of the upcoming fourth-quarter earnings season.

"A resilient economy should continue to support higher corporate profits, and the economy has proven to be somewhat less interest-rate sensitive relative to history over recent years," Lerner wrote.

Truist

And as long as the US economy stays afloat, Lerner believes domestic stocks are a solid bet.

"For those investors underweight their target equity position, we would use the pullback to average into the market," Lerner wrote.

Truist's top investment ideas in early 2025 are large caps over smaller stocks, companies in growth-heavy sectors like technology and communications services, and financials, which are an economically sensitive group. Outside of equities, the firm believes gold is a good hedge.

Those recommendations are very similar to six months ago, though technology and financials have replaced the defensive utilities sector, which has been a laggard lately.