In the midst of a strong bearish sentiment towards equities, Bank of America (NYSE:BAC)'s Bull and Bear Indicator has signaled "Buy", hinting at a potential median gain of 5% based on historical data. This signal was last flashed in May 2022 and was recently triggered again when investors increased their cash allocations. The indicator is designed to turn "buy" in extremely bearish conditions and "sell" in bullish ones.
This current bearish state is propelled by fund outflows from emerging market debt, high yield bonds, global stocks, and an uptick in cash allocations among Wall Street professionals. Since its inception in 2002, the indicator's 20 buy signals have resulted in median three-month returns of 5.4% for US stocks and 7.6% for global stocks.
The CNN Fear and Greed index along with the AAII Investor Sentiment survey reflect this increased bearish sentiment due to rising bond yields and declining stock prices. Bank of America expects the S&P 500's key support level of 4,200 to hold in the short-term, suggesting stable economic conditions.
However, the analysts also cautioned that if this support level doesn't hold and the 10-year yield hits a 5% ceiling, it could indicate an imminent risk of a credit event or hard landing. This warning underlines the precariousness of the current market conditions and the potential risks associated with these dynamics.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.