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Investing.com -- Bank of America’s Sell Side Indicator (SSI) rose slightly in October, signaling that Wall Street strategists have become marginally more bullish on equities, though sentiment remains far from euphoric.
The indicator, which tracks strategists’ average recommended equity allocation in a balanced portfolio, increased from 55.5% to 55.7% last month as the S&P 500 logged its sixth consecutive monthly gain, the longest streak since 2021.
“The 20bp increase in the SSI suggests strategists are incrementally more bullish but is a relatively small move vs. the average m/m change of ~50bp over the last 10 years,” strategists Victoria Roloff and Savita Subramanian said in a Sunday note.
“Buyside optimism also increased, although U.S. equity positioning does not appear too stretched yet,” they added.
Despite the uptick, the indicator remains in neutral territory, about two percentage points below the threshold that would trigger a “Sell” signal.
Bank of America strategists said the current reading “implies a healthy S&P 500 price return of 13% over the next 12 months.”
Historically, the SSI has acted as a reliable contrarian signal—bullish when strategists were most bearish and vice versa—showing stronger predictive power for future returns than many other market-timing models.
Corporate earnings have been robust in the third quarter, with 63% of companies beating both earnings and revenue estimates, the highest rate since 2021.
“Corporate commentary and guidance remain upbeat, but price action has skewed negative,” the strategists noted, implying much of the good news was already priced in before the reporting season began.
Stocks of companies that missed expectations lagged sharply, underperforming by more than seven percentage points the next day.
Meanwhile, liquidity conditions have remained favorable, strategists said, supported by policy measures, strong corporate capex, buybacks, and consumer spending.
However, they warned that “Fed cutting cycles accompanied by tightening credit has been the worst phase for stocks,” suggesting that investors should monitor shifts in liquidity dynamics closely.