BMO's Brian Belski: Anticipating a Pullback, Embracing a Buying Chance

Brian Belski's Market Insights: Embrace the Pullback for Future Gains

Editorial Team (ET)May 12, 2025

Market fluctuations can be daunting, but seasoned investors recognize that they often present lucrative opportunities. Brian Belski, the chief investment strategist at BMO Capital Markets, recently discussed the likelihood of a market pullback during an appearance on Morning Brief. According to Belski, this pullback is not just expected but is also a golden opportunity for savvy investors.

Understanding Market Pullbacks

A market pullback, defined as a temporary decline in stock prices, is a natural and expected part of market cycles. Historically, pullbacks allow the market to correct overvaluation and reset, paving the way for future growth. Understanding this phenomenon helps investors navigate through turbulent times with confidence.

The Cyclical Bull Market of 2024

Belski points out that we are in the second year of a new cyclical bull market that began in October 2022. This period is characterized by strong upward momentum in stock prices, despite occasional corrections. The strategist emphasizes that such corrections are typical and necessary for sustainable growth.

Historical Drawdowns: A Perspective

Since 1949, the average market drawdown during the second year of a bull market has been 9.4%. This statistic is significant because it provides a benchmark against which to measure current market behavior. Belski notes that, so far, the market has only seen a 5.5% correction, suggesting that a more substantial pullback could be imminent.

Market Frothiness and Big Cap Tech Stocks

The current market environment is described as frothy, with heightened investor enthusiasm, particularly in big cap tech stocks. This frothiness is often driven by a fear of missing out (FOMO) and momentum trading, leading to inflated valuations and increased volatility.

Sentiment and Market Correction

Belski believes that market sentiment is ripe for a pullback. The strategist anticipates a 9.4% correction, aligning with historical averages. This expected pullback is not a cause for alarm but rather a natural part of the market cycle that can create buying opportunities.

The Buying Opportunity

Historically, market pullbacks have presented attractive entry points for investors. Belski highlights that since 1949, the average drawdown of 15.5% has often been followed by strong market performance, with stocks typically ending higher by year-end. This pattern suggests that the upcoming pullback could be a strategic time to invest.

Belski’s Investment Formula

Belski's investment philosophy is succinctly captured in his formula: "Stocks lead earnings, which lead the economy." This means that stock performance often precedes and predicts earnings growth, which in turn drives economic expansion. Understanding this relationship can help investors make informed decisions.

Earnings and Economic Growth

With the stock market reaching new highs this year, Belski expects earnings to be robust. Strong corporate earnings are a key driver of economic growth, creating a positive feedback loop that supports further market gains. This underscores the importance of focusing on earnings trends when assessing investment opportunities.

Sector Analysis

While the tech sector has been a major driver of recent market gains, Belski cautions that some caution is warranted. As tech stocks reach high valuations, there may be a rotation into other sectors. This does not signal a decline in tech but rather a diversification of growth opportunities.

Financial stocks are poised for strong performance in the coming months. Factors such as rising interest rates and economic recovery support this sector's growth. Investors should consider increasing their exposure to financials to capitalize on these trends.

Healthcare and Industrials

Healthcare and industrial sectors also offer promising opportunities. Advances in medical technology and increased demand for healthcare services are driving growth in the healthcare sector. Meanwhile, industrials benefit from infrastructure investments and economic expansion.

Navigating Market Volatility

For investors, navigating market volatility involves a mix of strategy and patience. Long-term investors should view pullbacks as opportunities to buy high-quality stocks at discounted prices. Short-term traders might focus on tactical moves to capitalize on volatility.

Expert Insights and Predictions

Other market experts echo Belski's sentiments, predicting a market pullback followed by recovery and growth. While short-term fluctuations are expected, the overall outlook for the year remains positive. Investors should stay informed and agile to make the most of these opportunities.

Conclusion

In conclusion, while a market pullback might seem concerning, it is a natural part of market cycles and can offer significant buying opportunities. Brian Belski's insights provide a valuable perspective for investors looking to navigate these changes. By understanding historical patterns and focusing on strong sectors, investors can position themselves for success.

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