Bank of America Analysts Report Increasing Bullishness in Sell Side Indicator, Approaching Sell Signal - Market Update
In a recent note to investors, Bank of America analysts revealed that their top contrarian sentiment indicator, the Sell Side Indicator (SSI), is showing a significant increase in bullishness. The SSI rose by 61 basis points in August to reach 56.2%, its highest level in almost 2.5 years.
This uptick in sentiment comes as Wall Street strategists continue to increase their allocation to equities, despite early market volatility. Encouraged by improving market breadth and dovish remarks from Federal Reserve Chair Jerome Powell at Jackson Hole, strategists have been adding to their equity positions.
Historically, the SSI has been a reliable contrarian indicator, often signaling bullishness when the market 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 latest increase brings the SSI closer to a Sell signal than it has been since January 2022, now just 1.8 percentage points away compared to 4.9 percentage points from a Buy signal. Despite the growing optimism among sell side strategists, buy side positioning remains cautious, with funds selling off cyclical sectors and maintaining low exposure to Beta.
The Bank of America Fund Manager Survey also reported lower growth expectations and reduced risk appetite among investors, further highlighting the cautious sentiment in the market. On the retail side, sentiment has shown signs of recovery, with the AAII bull-bear spread rebounding to 24% net bullish after a dip in early August.
In conclusion, while sell side strategists are increasingly bullish on equities, caution remains prevalent among investors. The approaching Sell signal on the SSI indicates a potential shift in sentiment, which could impact market dynamics in the near future. Investors should closely monitor these indicators and adjust their portfolios accordingly to navigate the evolving market conditions.