Bank of America Analysts Report Bullish Sentiment on Equities Reaching 2.5 Year High - Analysis and Breakdown
In a recent note to investors, Bank of America analysts revealed that their Sell Side Indicator (SSI) has been steadily increasing, signaling growing optimism among strategists. The SSI, a top contrarian sentiment indicator, rose by 61 basis points in August to reach 56.2%, its highest level in almost 2.5 years.
This positive trend is being driven by strategists' confidence in the market, despite early volatility. Factors such as improving market breadth and Federal Reserve Chair Jerome Powell's dovish remarks at Jackson Hole have encouraged strategists to increase their equity allocations.
The SSI has historically been a reliable contrarian indicator, meaning it tends to be bullish when Wall Street is bearish and vice versa. While the indicator currently remains in Neutral territory, Bank of America warns that it is edging closer to a Sell signal.
This is the closest the SSI has been to a Sell since January 2022, with just a 1.8 percentage point difference compared to 4.9 percentage points from a Buy. However, despite the bullish sentiment among sell side strategists, buy side positioning remains cautious, with funds selling off cyclical sectors and maintaining low exposure to Beta.
The latest Bank of America Fund Manager Survey also reported lower growth expectations and reduced risk appetite among investors. On the retail side, sentiment has shown signs of recovery, with the American Association of Individual Investors (AAII) bull-bear spread at 24% net bullish, rebounding from a dip in early August.
In conclusion, the increasing bullishness among sell side strategists may indicate a potential shift in market sentiment. However, the cautious approach of buy side investors and lower growth expectations suggest a more tempered outlook. It's important for investors to carefully consider these factors and stay informed about market trends to make well-informed decisions about their finances.
