A strategist warns that after the breathless surge at the beginning of the year, US stocks may take a slight breather, at least retreating by 5%.

The S&P 500 index soared more than 10% in the first quarter. The AI frenzy fueled the rise of US stocks such as Nvidia and Microsoft, while cool inflation fueled investors' hopes for a series of Fed rate cuts, driving demand for US stocks.

Sam Stovall, chief investment strategist at CFRA Research, recently pointed out in an interview that this was the 11th best US stock first-quarter performance since World War II.

However, he noted that 14 of the top 15 U.S. stock first-quarter performances went on to experience at least a 5% decline, sometimes even more than 12%.

" I’m growing increasingly concerned that we may have to suffer through another decline of at least 5% by year-end," said Stovall, describing this fall as a "tuning knob" or digestion after a big meal.

This will cause the S&P 500 index to fall from last Friday's closing of 5432 points to about 5160 points - the level in early March. A 12% decline would send the S&P 500 below 4800 points, back to January trading levels.

"The top-of-the-line Hope" after outstanding performance in the first quarter is that the S&P 500 index is expected to rise an average of more than 20% by the end of this year. This means that the index can increase significantly on top of the 14% increase so far this year.

The Wall Street veteran also outlined some factors that could trigger a pullback. He pointed out some unpredictable events, such as war or bank failures, the market rising too fast and becoming overinflated, or a slowing economy that rekindles investor concerns about recession.

Stovall pointed out that the S&P 500 index's price-to-earnings ratio is 30% higher than the average level of the past 20 years and mentioned its recent rise relied on technology stocks.

"How long can this giant jet fly with just one engine?" he asked.

Of course, there are also Wall Street figures who offer different opinions. Julian Emanuel, head of stock, derivatives, and quantitative strategy at Evercore ISI, pointed out that "U.S. inflation remains one of the main drivers behind the bull market in U.S. stocks."

Jonathan Golub, chief U.S. stock strategist at UBS Group, believes that last week's inflation data "provides greater upward potential for the year-end outlook for U.S. stocks."

Golub's confidence is growing because the Fed has made significant progress in achieving its 2% inflation target since the beginning of this year. This has fueled hopes for rate cuts and pushed down U.S. Treasury yields, a significant boost to U.S. stocks over the past year.