Wall Street’s strategists are more bearish on stocks right now than they were in the wake of the tech bubble collapse or even in the aftermath of the global financial crisis of 2008.
In fact, they haven’t been this bearish since 1998, 15 years ago.
In a new note titled “Wall Street Proclaims The Death Of Equities”, Bank of America Merrill Lynch equity strategists Savita Subramanian, Dan Suzuki, and Jill Carey point to that their proprietary contrarian sell side indicator which is starting to look very bullish:
After triggering a Buy signal in May, our measure of Wall Street bullishness on stocks declined again, marking the ninth time in eleven months that the indicator has fallen. The 0.8 ppt decline pushed the indicator down to 49.3, the first time below 50 in nearly 15 years, suggesting that sell side strategists are now more bearish on equities than they were at any point during the collapse of the Tech Bubble or the recent Financial Crisis. Given the contrarian nature of this indicator, we are encouraged by Wall Street’s lack of optimism and the fact that strategists are recommending that investors significantly underweight equities vs. a traditional long-term average benchmark weighting of 60-65%.
“The Sell Side Indicator is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month,” they write. Here is what the indicator looks like:
Photo: BofA Merrill Lynch
The BofA team’s punch line: the level of the indicator suggests an S&P 500 target of 1665 in a year, or a 22 per cent return. The BofA analysts say this is not their official price target, but this indicator is part of the model that they use to generate it.
The question becomes: which of the equity analysts are right?