Bank of America Merrill Lynch’s sell side indicator says you should still buy stocks.
Mostly because people hate stocks.
In a note to clients on Thursday, Bank of America released its latest sell side consensus indicator, which shows that based on the average recommended exposure to stocks, Wall Street strategists are flashing a “contrarian buy signal.”
This means strategists are still recommending relative caution with respect to how much money clients should have exposed to the stock market, and so an investor who basically wants to take the other side of what Wall Street is selling should buy here.
Additionally, when the indicator is at current levels — with about 53% of Wall Street strategists recommending an underweight allocation to stocks — BAML says the expected 12-month return for the S&P 500 is 18%. So far this year, the S&P 500 is down about 7%.
In September, the Sell Side Indicator — our measure of Wall Street’s bullishness on stocks — dropped back to 53.1 from 54.0 the prior month, moving the indicator back into “Buy” territory after briefly breaching “Neutral” territory last month. While this indicator has improved significantly off of the 2012 lows, today’
s sentiment levels are still near where they were at the market lows of March 2009 and over 12pts from the level of extreme bullishness that would indicate a contrarian “Sell”
signal in our model. Strategists are still recommending that investors significantly underweight equities, at 53% vs. a traditional long-term average benchmark weighting of 60-65%.
Said another way, investors want to own stocks about as much as they did after the traumatising collapse in stock prices seen over the six months spanning the fourth quarter of 2008 and the first quarter of 2009. This period was the nadir of the financial crisis and about as rough a time for financial markets and the economy that investors had seen since the Great Depression.
And so on the one hand, this indicator is saying you should buy stocks right now.
On the other hand, this indicator has been saying that for years.