US Markets

Was that it? Pros had hoped for more from pullback


If only the broader stock market fell a lot harder during the momentum tumble.

That's the lament of strategists who say prices may still not be cheap enough to draw in new buyers or provide much more upside. The by April 15 had lost a total 3.8 percent from its high and was temporarily under water for the year, but a six-day rally has taken it nearly back to its high.

A trader works on the floor of the New York Stock Exchange.
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"We could very well be looking at this consolidation phase in the rear-view mirror. A pullback of 5 to 10 percent seems very reasonable, but we got near 4 percent and rallied back," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

"My view is that the market's inability to charge markedly higher is it is waiting for economic and profit validation," Luschini said.

The equities market has already baked in a double-digit earnings gain, year over year, which is why in his view a market with full valuations is vulnerable to setbacks. The scenario "demands good news, not just better than good," he said of mixed economic reports and corporate profits exceeding low bars.

"Valuations are full, so if we went down 10 percent, we'd be starting from a more reasonable point," he said. As things stand, any rally "may not be as robust and long lasting" as one that came after washing out additional players.

Don't sell in May this year: Pro

The S&P's decline came as the Nasdaq Composite plunged to within reach of the level viewed as an official correction, falling nearly 10 percent as of April 15 from its March high as investors ditched such "momentum" stocks as Apple, Tesla Motors, Twitter and Facebook.

Read MoreWhy stocks may be sniffing out inflation

"Technically it wasn't a correction by the numbers. It was somewhat localized and narrow in areas of the market, specifically biotech, Internet retail, IPO stocks and social media," said Jim Russell, senior equity strategist for US Bank Wealth management.

"We do think that's over. But that does not prevent individual companies that drastically missed first-quarter earnings and gave weak guidance from being punished," Russell added.

The decline in new technology was likely related to valuation, as many of the companies involved "got to levels that were speculative," said Hugh Johnson, chairman of Hugh Johnson Advisors.

Still, Johnson wonders if the early April pullback represents "the correction we should have had in 2013, and whether there may be something that is troubling beneath the surface."

"We did get down to levels that had technical significance; the S&P 500 did not quite get there, but it was close," said Luschini, noting the index didn't hit the 200-day moving average or the trend line in place for some time. "At the same time, it was hardly at oversold levels."

In looking at the performance of the U.S. stock market since the end of last year, several things leave Johnson troubled.

For one, utilities have performed the best among the S&P 500's 10 major sectors, up more than 11 percent.

"That's not good news, and usually happens when investors become defensive. Staples have also performed well, that's another example that investors are worried about something," said Johnson.

Further, large companies have outperformed small companies, an indication that investors are becoming "cautious, risk adverse or worried," Johnson said.

Stock market headwinds include the unresolved Russian-Ukrainian geopolitical conflict. "Should that spin out of control, that's a negative," Russell said.

Market worries: Fed, geopolitics & more

Another likely impediment is the debate and rhetoric that is likely to begin in earnest in the third quarter and pick up in the fourth about the timing of when the Federal Reserve will begin to increase interest rates.

"The day that the Fed starts raising short-term interest rates might be coming sooner as opposed to later," said Johnson.

The big difference between 2014 and the bursting of the technology bubble in 2000, Johnson believes, is "inflation was pretty close to 4 percent in June of 2000, and the Fed had been raising interest rates, which in time killed off the recovery."

"The big difference is they haven't done that yet; inflation is low and they haven't raised rates. We're probably safe through 2014, and maybe the first half of 2015, but there are signs that inflation might become an issue, and that's why value stocks have outperformed growth stocks," Johnson said.

While Russell believes the market can continue to climb and gives 2,030 as a year-end target for the S&P 500, that rise is contingent on the performance of corporations.

"We have to have earnings come through. We've given most companies a pass on first-quarter earnings because of the weather. We view the second, third and fourth quarters as a no-excuses period where earnings have to be met or exceeded," Russell said.

"I'd like to see the stock market get to levels that are undervalued, and where there is widespread pessimism. I'd like to see the correction go further, and if I don't see that, I don't want to see the defensive sectors perform so well," said Johnson.

"I'm a little bewildered at where this enthusiasm for stocks at full valuation is coming from," said Luschini.

But Johnson remains hopeful that stocks will eventually become more appealing for bargain hunters, saying: "The days of bad news and corrections are certainly not behind us."

Jack Ablin, chief investment officer at BMO Private Bank, believes the market could correct sideways.

"We rallied more than I would have thought last year. It's entirely possible for the market to tread water and have the market catch up. I have no problem with it as long as fundamentals outpace stock prices. To me that's a much better way to correct," said Ablin.

Don't sell in May this year: Pro

—By CNBC's Kate Gibson