Bank of America told investors in a research note Monday that while sentiment is ticking higher, there is "still no euphoria."
Analysts at the investment bank explained that its Sell Side Indicator (SSI), a contrarian sentiment barometer that tracks sell side strategists’ average recommended allocation to equities in a balanced fund, ticked up 22bp to 55% in March, the highest level since May 2022.
"Equity gains likely bolstered confidence, with the S&P 500’s March 3.2% total return driving the strongest 1Q since 2019 (+10.6%) and notching a 5-month streak of gains," said the bank.
"The SSI has been a reliable contrarian indicator—in other words, it has been bullish when Wall Street was extremely bearish and vice versa," BofA added. The SSI is “Neutral” today, just above its 15-year average of 54.7%.
In fact, it is closer to a contrarian "Sell” than a “Buy” signal, although it still indicates gains of +13% over the next 12 months.
BofA stated: "When the SSI was the same or lower, returns were positive 94% of the time over the next 12m vs. 81% overall."
The firm's economists expect the Fed to begin cutting interest rates in June, with cash yields approaching 3% within two years. If so, they believe trillions of dollars of cash in retirees’ accounts could shift to equity income, driving their preference for value and income stocks.
The firm believes history corroborates the shift and that the broadening seen in March should continue.