(Bloomberg) -- The US stock market’s retreat from all-time highs set late last month is giving investors parked in cash an opening to buy in, according to Sinead Colton Grant, chief investment officer of BNY Mellon’s wealth management arm.

The three-week slump in the S&P 500 Index is a healthy consolidation by traders after it soared 10% in the first quarter, its best start to a year since 2019, on top of a 24% gain in 2023, she said. From here, Colton Grant expects the rally to not only resume but broaden based on strong earnings growth and continuing economic momentum, potentially pushing the S&P 500 beyond the higher end of her 5,000-5,400 target range before 2024 closes out.

“History has so many examples in which investors waited to find the absolute low and they missed their moment, so if you have capital to deploy, this is a good point to start adding exposure,” she said in an interview. “It’s a fascinating market, and the worst thing for investors is to be completely in cash.”

BNY Mellon Wealth Management is overweight US large-cap stocks, preferring them to international and emerging-market equities. While American shares trade at higher multiples than the rest of the market, Colton Grant likes the free cash flow bigger companies generate. In particular, she favors the technology, health care and industrial sectors.

The S&P 500 is on track for a third-straight week of declines as investors dial back their expectations for the Federal Reserve to reduce interest rates after a series of hot inflation reports. Atlanta Fed President Raphael Bostic reiterated on Thursday that he doesn’t think cuts will be appropriate until the end of the year.

But all along BNY Mellon has expected fewer interest rate cuts than the market was pricing in for this year. When investors anticipated six, it saw four. Now it sees just one — in December.

“We’ve seen for the first time markets really react to a reduction in expectations for rate cuts, which I think is healthy,” Colton Grant said, noting that at the start of the year, equities barely responded as traders scaled back rate bets.

Earnings are the key for stocks to rise from here. BNY Mellon Wealth Management expects 11% profit growth in 2024. And it doesn’t matter if the Fed cuts rates or not, Colon Grant said. Because interest rates have been at near-zero levels for most of the period since the 2008 financial crisis, a narrative took hold that equity markets need interest rates at almost zero and inflation near 2% to perform well, she said. But to her, that’s flawed logic. 

“Equity markets can do very well with inflation in the 2% to 4% region, which is where we are right now,” Colton Grant said. “The problem has come when we’ve been north of 5% and heading up toward double digits, like we were in 2022. But we think that right now it’s actually a pretty constructive environment for stocks.”

--With assistance from Sagarika Jaisinghani.

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