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Investing.com -- Global investor sentiment is approaching levels of “borderline exuberance,” Bank of America said, warning in a note Tuesday that its contrarian Global Equity Risk-Love gauge suggests the market could be nearing a tipping point.
According to BofA equity strategist Ritesh Samadhiya, the indicator, which tracks measures such as volatility, asset correlations, spreads, and cash allocations, currently sits at the 89th percentile of its historical range since 1987.
“Our contrarian sentiment gauge, Global Equity Risk-Love, continues to exhibit early signs of investor euphoria as global equity markets push toward record highs,” Samadhiya wrote.
While market mood remains positive, BofA noted that sentiment surveys of both retail and institutional investors “have yet to hit extreme optimism.” That, the bank said, means there may still be room for further gains before a pullback.
In regional terms, Samadhiya stated that Emerging Markets and Asia ex-Japan indicators have “moderated slightly” after reaching their highest levels since the second quarter of 2021.
Sentiment is said to remain buoyant in markets like China, Hong Kong, Singapore and South Africa, though enthusiasm has cooled in Korea, Taiwan, Mexico, Türkiye, and the Philippines. Indonesia is currently the only market reflecting outright pessimism, it added.
The macro backdrop remains “Goldilocks,” Samadhiya remarked, as global GDP and earnings forecasts are being revised higher while inflation trends lower.
The strategist highlighted that markets have historically performed well when the Federal Reserve resumes rate cuts, especially outside recessionary periods.
However, BofA cautioned that investors should “watch for signs of narrowing market breadth as a cue to reduce risk, if sentiment begins to falter from elevated levels.” Until then, it said, investors should “stay constructive.”