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By Lewis Krauskopf and Caroline Valetkevitch
NEW YORK (Reuters) - A sharp pullback in stocks last week, including the S&P 500's (.SPX) biggest single-day drop since a market correction in February, has left investors questioning whether this could signal danger for the longest-ever bull run for U.S. equities.
The following are five arguments on either side of the debate:
REASONS TO BE BULLISH
PROFITS, PROFITS, PROFITS: Strong growth in U.S. corporate profits underpins the case for the bull market continuing its run. S&P 500 earnings are expected to rise 23.1 percent this year, according to I/B/E/S data from Refinitiv.
“If you still think the corporate profit story is intact, you should be owning stocks here,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
IT'S THE ECONOMY, STUPID: Federal Reserve Chair Jerome Powell last week said the outlook for the U.S. economy is "remarkably positive," and strategists are quick to note that it is rare to have a bear market when the economy is expanding.
"When you don’t have a recession, typically pullbacks can be sharp, but they tend to be short,” said Brad McMillan, chief investment officer for Commonwealth Financial Network in Waltham, Massachusetts.
HIGHER INTEREST RATES - NO BIG DEAL: The spike in U.S. Treasury yields spooked stocks but rising rates are less concerning if they are gradual.
"We believe we are in a reflationary environment ... and hence, rising rates tend to be associated with rising stock prices," Thomas Lee, Fundstrat's head of research, said in a note.
MARKET CORRECTIONS - THEY'RE A GOOD THING: Sharp market pull-backs are viewed positively in the context of a long bull run because they rid the market of complacent investors and shake off pricey valuations.
"You need these periodic cleanses to kind of refresh and then allow the market to move higher," Carlson said.
THE BUYBACK IS YOUR FRIEND: Some market-watchers have pointed to a recent "quiet period" preventing corporate stock buybacks as a potential reason for a lack of support during the volatility. But companies are expected to keep using their cash to repurchase their stock, keeping demand for equities high. Goldman Sachs strategists expect S&P 500 buybacks to climb by 22 percent to $940 billion in 2019.
Bucky Hellwig, senior vice president at BB&T Wealth Management, said that buybacks are "sustainable:" "You've got companies generating a higher level of cash flow based on the tax cuts that are in effect now, and that cash flow has to go somewhere."
REASONS TO BE BEARISH: