Bank of America’s Sell Side Indicator (SSI), a contrarian sentiment gauge tracking sell-side strategists' average recommended equity allocation, increased to 53.6% last month, rising by 56 basis points.
This uptick follows the S&P 500's nearly 9% rally in its best month since July 2022, according to the bank’s quant strategists.
Despite the increase, the SSI is only 1.1 percentage points above its May trough, the lowest level in over six years. Historically, when the SSI has been at this level or lower, 12-month forward S&P 500 returns were positive 96% of the time, with a median return of 21%.
The current SSI level indicates an expected price return of +15% over the next 12 months, which would see the S&P 500 reach 5300 by the end of 2024. While the SSI is currently in "Neutral" territory, it leans much closer to a contrarian "Buy" signal than a "Sell."
“Despite growing expectations for a soft landing, we are still far from a market environment dominated by high conviction and euphoria,” the analysts wrote.
“But sentiment isn’t the only reason to have a constructive equity outlook, in our view: we are likely past the point of peak uncertainty on inflation/rates, corporates already had an earnings recession and have cut costs, BofA fundamental analysts expect margins to hold up amid decelerating prices, and the US has key advantages over other regions.”
Bank of America’s official price target for the 2024-end is 5000.