Bank of America strategist Nigel Tupper recently published an update on the firm’s proprietary “Global Wave.” And it’s flashing a buy signal for stocks.
From a recent note to clients:
The Global Wave is signaling a trough in the global cycle. Macro data improved enough recently to suggest investors position for an economic upturn. The diverse but coincident policy response across the world (monetary easing, Operation Twist, LTRO, etc) appears to be having a positive impact. History suggests that once the Global Wave troughs, the MSCI ACWI (All Country World Index) averages 14.2% in the next 12 months with a positive return 86% of the time.
This indicator quantifies global economic trends, and it is used to forecast stock market performance. It’s an aggregation of seven proprietary indicators: global industrial confidence, global consumer confidence, global capacity utilization, global unemployment, global producer prices, global credit spreads, and global earnings revisions ratio.
The earnings revisions ratio was a key driver to the recent upturn in the Wave. However unemployment and producer prices continue to drag.
Here’s BofA’s chart:
Photo: Bank of America Merrill Lynch