Equity sentiment 'still more bullish than bearish' says BofA

Investing.com -- Equity sentiment among Wall Street strategists remains tilted toward optimism, though signs of caution are emerging, according to Bank of America.

The bank’s Sell Side Indicator (SSI), a contrarian gauge tracking strategists’ average recommended equity allocation, fell slightly in August to 55.5% from 55.7% in July.

“August’s dip in sentiment marks the SSI’s first decline since April, although the magnitude was relatively small (20bp vs. the average monthly move of ~50bp over the last 10 years),” BofA said.

Despite the small drop, the indicator remains more bullish than bearish. “The SSI remains in ‘Neutral’ territory but is much closer to a ‘Sell’ signal than a ‘Buy’ (2.3ppt vs. 4.2ppt),” BofA noted.

The bank adds that the current level suggests a projected 13% price return for the S&P 500 over the next 12 months. On a year-over-year basis, the SSI is 70 basis points below its August 2024 reading, after which the S&P 500 gained 14% over the following 12 months.

BofA also highlighted mixed sentiment among retail investors. While fund managers show more optimism than pessimism, consumer surveys indicate a less exuberant outlook.

“A net 17ppt of consumers expect stock prices to move higher over the next 12 months…well below the max of 36ppt hit late last year,” the bank’s analysts wrote. The American Association of Individual Investors’ bull-bear spread remains relatively neutral at 5ppt net bearish.

BofA emphasized that a peak in the bull market generally requires multiple sentiment indicators reaching extreme levels.

“We don’t think we are there yet,” the note said, underscoring that equities continue to attract support from both professional and retail investors.

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