NEW YORK (Reuters) - The first sharp pullback for U.S. stocks in half a year is leaving investors wondering whether to buy the dip or hold out for more declines.

Following several turbulent weeks, the S&P 500 is down more than 5% from its March 28 closing high, its biggest retreat since October. Though they have been rare in recent months, such drops are not uncommon: The S&P 500 has experienced an average of three pullbacks of 5% or more every year since 1929, a Bank of America analysis showed.

Many market participants believe the factors that drove the S&P 500 to a 10% gain in the first quarter - including resilient economic growth and excitement over artificial intelligence - remain in place and will support stocks over the long term.

For the last week, however, sellers have had the upper hand. The S&P 500 fell for its sixth straight session on Friday, the longest such streak since October 2022.

While some investors are already buying on weakness, others are waiting for more clarity on the path of inflation, geopolitical tensions in the Middle East and the strength of corporate earnings before jumping in.

A pullback is "long overdue," said King Lip, chief strategist at Baker Avenue Wealth Management. "I think it's a garden variety correction at this point."

Lip has started adding equity exposure for clients and plans to buy more if stocks slide further. Nevertheless, he believes the S&P 500 could fall by as much as 10% from its March 28 high.

History shows that strong starts to a year are often followed by sizable retreats, after which the stock market typically rights itself and continues higher.

The S&P 500 has seen an average maximum drawdown of 11% each time it has gained 10% or more in the first quarter, a study from Truist Advisor Services showed. The index has ended the year higher in 10 out of 11 such instances since 1950.

"We're not surprised that there was a bit of a pullback," said Sonu Varghese, global macro strategist at Carson Group, who has been using the recent weakness as an opportunity to increase positions in small-cap stocks.

"I think buyers will start stepping in," he said.

Still, investors have grown cautious. Clients of BofA sold $800 million in U.S. equities in the latest week, the third straight week they were net sellers, the firm said last Tuesday.

Meanwhile, some volatility-sensitive funds that bought equities as markets marched higher have already started selling and could dump more stocks if markets grow more turbulent. Analysts at Nomura estimate such funds could dump around $45 billion worth of stocks if the S&P 500 averages daily moves of 1% over the next two weeks.

Investors are also watching the level of the Cboe Volatility Index. Though the index stands around a six-month high of 19, some volatility watchers believe it has not fully factored in the inflation worries and geopolitical rumblings that have spooked markets in recent weeks.

"With the current situation in the Middle East potentially escalating, I am surprised short term volatility isn't higher," said Seth Hickle, managing partner at Mindset Wealth Management.

"We have repositioned a small number of positions, but I am waiting to see how earnings look before making any big changes to our portfolios."

Indeed, many believe the coming week's earnings from some of the market's biggest names could offer support to stocks - or further exacerbate the selloff. Tesla, Meta Platforms, Alphabet, and Microsoft are all scheduled to report in the coming days.

So far, the earnings picture has been mixed. Netflix shares fell on Friday as its plan to stop sharing subscriber numbers from 2025 stoked growth worries, while Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker, dialed back expectations for chip sector growth.

"As the S&P 500 valuation remains over 20 times forward earnings ... any disappointment from the mega-tech names reporting could push this week's oversold market deeper into oversold territory," wrote Quincy Krosby, chief global strategist for LPL Financial, in a Friday note.

Investors will also focus on Friday's release of the monthly Personal Consumption Expenditures Price index, a crucial piece of inflation data before the Fed's April 30-May 1 meeting. Stronger-than-expected inflation has eroded a key driver of the bull market, with investors now pricing in around 40 basis points of interest rate cuts this year, compared to 150 priced in at the start of 2024.

Tim Ghriskey, senior portfolio strategist for Ingalls & Snyder in New York, said he has been "doing some buying on the dip in very aggressive portfolios" but remains concerned about incoming inflation data.

"Resumption of disinflation is key" to averting the fear of Fed rate hikes, he said.