Alexandra Semenova
June 1, 2023

A contrarian indicator from Bank of America Corp. that compiles Wall Street strategists’ allocation recommendations is the closest it has been to notching a “buy” signal since 2017.

  • Sell-side indicator, which tracks US sell-side strategists’ recommended allocation to stocks, edges down 22 basis points to 52.5% in May, 1.1 percentage points away from a level historically associated with a good buying opportunity, strategists led by Savita Subramanian say in a Thursday note
  • Previous times indicator was at current level or lower, the S&P 500 Index returned 16% in the following 12 months
    • Returns on the US stock benchmark were positive 94% of the time versus 81% overall, with a median 12-month return of 21% whenever indicator has hovered toward buying level
  • If trend holds up, expected return would place the S&P 500 at 4,600 by year-end and near 4,900 in 12 months
  • Strategists boost recommended bond allocation by 22 basis points on average in May, expanding “dramatic shift” in bond versus equity allocations since December 2021
  • “We see other reasons to be optimistic on stocks besides the fact that the world is so pessimistic,” Subramanian writes
  • “A newfound corporate focus on efficiency — automation, doing more with less, AI — could drive productivity gains, and investors tend to pay higher multiples for permanent cost reduction”
  • BofA recently raised its 2023 year-end target for the S&P 500 Index to 4,300 from 4,000, with a range of 3,900 to 4,600