Wall Street pullbacks may present buying opportunities - Citi

Investing.com -- Declines on Wall Street -- such as the dip in equities seen earlier this week following a hotter-than-anticipated U.S. inflation reading -- could be considered buying opportunities as the Federal Reserve considers a possible policy pivot, according to analysts at Citi.

Stocks have largely had a strong start to the year, with the benchmark S&P 500 climbing by more than 5% year-to-date and recently closing above the 5,000-point mark for the first time ever. Much of the impetus has come from hopes that the Fed would soon begin to start bringing interest rates down from more than two-decade highs.

However, these expectations have been dented in recent weeks by commentary from Fed officials and economic data. Most recently, figures on Tuesday showed that price pressures in January did not abate as much as projected in January. Markets subsequently factored in a delayed timeline for the first rate cuts, pushing up U.S. government debt yields and hitting stocks.

"[T]he market is grappling with the [...] data and its potential impact on future Fed rate actions," the Citi analysts said in a note to clients published on Wednesday.

But they said the strong inflation reading does not greatly alter their opinion that the S&P 500 will eventually touch the 5,100-level by the end of this year. Instead, they argued that the sticky price gains are a sign of expected "volatility" on the path to a less restrictive Fed policy stance and a so-called "soft landing" -- a scenario in which inflation is quelled without sparking a meltdown in the broader economy or labor market.

As a result, the analysts said that "material" stock market pullbacks, namely ones that are 5% or greater, represent a chance for traders to improve the prospective rewards they can receive from their investments.