BofA’s contrarian indicator shows Wall Street is ‘skeptical’ about stocks rally

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Bank of America Corp.’s contrarian indicator suggests a shift in equity sentiment for the first time since October.

The Sell-Side Indicator (SSI) reflects the average equity allocation recommended by sell-side strategists in a balanced fund.

Current concerns like China’s growth prospects, expectations of Federal Reserve rate cuts, and geopolitical tensions continue to be dominant in the news.

Meanwhile, few investors seem prepared for a macroeconomic recovery, maintaining low exposure to cyclical sectors, small caps, and high beta stocks.

“With consensus expecting a soft landing, investors are increasingly concerned that there are no bears left on Wall Street,” analysts at BofA said.

Despite the S&P 500 reaching a record high, strategists have started reducing their equity allocations, according to BofA.

In January, the Sell-Side Indicator (SSI) slightly decreased by 24 basis points to 54.4%, which is considered a neutral position. This drop follows two months of increases.

The current indicator is now just below its 15-year average of 54.6%. Interestingly, this positioning is closer to a contrarian “buy” signal rather than a “sell.” With the present level, there’s an anticipated return of 14% over the next 12 months.

Historically, when the indicator is at or below the current level, it has aligned with higher S&P 500 returns 94% of the time in the following year.

Source: Investing.com