- A contrarian indicator from Bank of America that measures investor bullishness jumped in November as vaccine progress sparked optimism on Wall Street.
- BofA’s Sell Side Indicator rose to 57.8%, the highest level of bullishness in 18 months. Usually when Wall Street is bullish, that’s a bearish sign for stocks, according to BofA equity strategists.
- But right now, investor sentiment is not at the euphoric level that is typically seen at the conclusion of bull markets, meaning there’s more upside for the S&P 500 in 2021.
- The firm’s equity strategists said the SSI indicates a 10% total return in the S&P 500 over the next 12 months.
- Visit the Business Insider homepage for more stories .
A Bank of America contrarian indicator measuring investor bullishness jumped in November as vaccine progress sparked optimism on Wall Street.
The Sell Side indicator, which is based on the average recommended equity allocation of nine Wall Street strategists, rose to 57.8% from 57% last month, the highest level of bullishness in 18 months.
The SSI is a contrarian indicator, meaning that when Wall Street is bullish, that’s a bearish sign for stocks, according to a team of equity strategists led by Savita Subramanian. The indicator is now closer to a “sell” signal than it has been since the onset of the Greet Financial Crisis.
But this doesn’t mean that it’s time to sell stocks just yet. In fact, the strategists said this signal indicates a 10% total return in the benchmark S&P 500 over the next 12 months. In other words, investor sentiment is rising, but it’s not yet at the euphoric level that is typically seen at the conclusion of bull markets.
Although history doesn’t guarantee future returns, BofA noted that when the Sell Side Indicator has been at this level or lower, the following 12 months have seen positive returns 93% of the time.
The strategists also said that the Sell Side Indicator has historically been a reliable contrarian indicator and has forecasted S&P 500 returns more accurately than other models on the Street.
“It has been a bullish signal when Wall Street was extremely bearish, and vice versa,” they said. “While the SSI does not catch every rally or decline in the stock market, the indicator has historically had some predictive capability with respect to subsequent 12-month S&P 500 total returns.”
Business Insider Emails & Alerts
Site highlights each day to your inbox.