Market bull braces for 5-10 percent pullback, sees compelling reasons to buy the dip

Even some market bulls can't deny sell-off risks right now.

Wall Street veteran Bill Stone, who spent 18 years as a chief strategist at PNC Financial, told CNBC's "Trading Nation" on Wednesday that a 5 to 10 percent stock market drop is conceivable in the coming weeks.

"Since we are back close to the highs for the S&P 500, risks of a pullback have certainly risen," he wrote in a note to CNBC.

The S&P 500 has been flirting with fresh records. The index is now just fractions of percent from its all-time high of 2,872.87.

But there's concern on the Street that seasonal headwinds may prevent the next leg up in the coming weeks. Historically, August is vulnerable to stock market declines during midterm election years.

Yet it's not alarming Stone.

"I would honestly look at it probably as a buying opportunity if we did get that pullback," he said.

Stone, who runs Stone Investment Partners, contends the strong earnings numbers could help the market overcome seasonal sluggishness, thus averting a pullback altogether.

"Third quarter earnings are probably set to grow around 20 percent," he said.

Regardless of whether or not a near-term sell-off comes, Stone sees stocks closing the year higher than current levels. His favorite groups in the U.S. are technology, energy and real estate. For investors looking to venture outside the country, he views Japan as a profitable spot.

"Japan is susceptible to the whole tariffs spat between the U.S. and China. But Japan is selling at 13x earnings," he said. "They even have a dividend yield of about 2.1 percent right now — so, even above the S&P 500."

As for 2019, he's not too concerned about the market.

"Everything that I track really says there's very little chance of us going into a recession any time in the near future," Stone said. "The backdrop is good."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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