The BofA stock market indicator is close to issuing a "sell" signal
BofA's indicator is approaching the "sell" zone at a time when stock recommendations are becoming too optimistic / Photo: Shutterstock.com / Jonathan Weiss
The Bank of America indicator, which is widely used in the market to reflect the average recommended equity allocation in Wall Street strategists’ portfolios, has approached a level that is considered a signal to reduce positions. The indicator has risen to its highest level in 4.5 years.
Details
The BofA Sell-Side Indicator (SSI) shows what percentage of stocks strategists recommend holding in a balanced portfolio. When they become too optimistic about the stock market, the indicator approaches the “bear” zone. Conversely, extreme pessimism suggests it’s a good time to buy, explains Business Insider.
In September, the SSI rose from 56.4% to 57.2%. It remains 0.3 percentage points away from the level required to trigger a “sell” signal, the bank told clients in a note cited by the publication. This is the indicator’s highest reading since March 2022—the month when the U.S. Federal Reserve began a cycle of interest rate hikes after keeping rates at record lows for several years.
Typically, a “sell” signal from BofA corresponds to weaker stock performance over the next 12 months. When the SSI reached this level in the past, the S&P 500 gained an average of about 3% over the following year, compared with a historical average return of approximately 10%, the bank’s analysts note. Although the indicator does not capture every rise or fall in the stock market, it has provided more accurate forecasts compared to many other tools for timing market entries and exits, Business Insider reports.
Context
Recently, more and more Wall Street analysts have been taking a cautious stance on stocks, especially against the backdrop of rising bond yields, which could put pressure on risky assets, Business Insider warns. The share of bonds in fund managers’ portfolios has fallen to its lowest level since the beginning of 2022, The Wall Street Journal reports, citing a BofA survey.
Major U.S. stock indices remain near record highs. However, the market rally is becoming less broad-based: the proportion of stocks gaining in price recently reached a low relative to the overall S&P 500 level, according to an analysis by the research firm Ned Davis Research. According to Rosenberg Research, the median stock in the index is currently trading 15% below its high over the past year.
This article was AI-translated and verified by a human editor
