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Sentiment on Wall Street has gotten so bad that strategists are finally starting to give up, and that could trigger a credible buy signal from Bank of America. Bank of America Merrill Lynch’s Sell-Side Indicator, based on a survey of Wall Street strategists’ asset allocation recommendations, has hit its lowest level since early 2017. The bank said historically, when the indicator is at current levels or lower, the next 12-month returns S The &P 500 was 94% positive during that time and the 12-month median return was 22% higher. “Equity sentiment continues its decline toward a ‘Buy’ signal,” Savita Subramanian, head of US equities and quantitative strategy at Bank of America Securities, said in a note. “We have found that the Wall Street consensus equity allocation has historically been a reliable contrarian indicator.” The indicator only measures how the largest portfolio managers are positioned. Bank of America says the 60% to 65% range represents a traditional “typical” equity allocation for a balanced fund. The 2008 financial crisis pushed the indicator below that range for the first time since 2000. Currently, the level stood at 52.8% in October after declining 6 percentage points this year. Bank of America said strategists are beginning to recommend increased allocations to bonds as yields continue to rise. “The growing debate over whether bonds now look more attractive than stocks marks a departure from the post-GFC era when TINA (‘No Alternative’ to stocks) was the prevailing argument,” says Subramanian. The stock market has been doing well this year as the Federal Reserve has rushed to raise interest rates aggressively to tame inflation. The central bank is widely expected to raise rates by 75 basis points on Wednesday for the fourth time in a row. The S&P 500 is down more than 19% this year. To be sure, the Sell Side Indicator is only one of five metrics that Bank of America takes into account for its official market forecast. The bank sees the S&P 500 ending the year at 3,600, about 6% lower than where it is trading now.
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