Bank of America analysts remain optimistic about the stock market, despite the hesitation of strategists to increase equity allocations in June.
The bank's Sell Side Indicator (SSI), a contrarian sentiment gauge, stayed at a two-year high of 55.3%. This indicates that while strategists are cautious about the rally's sustainability, they haven't pulled back from equities.
The BofA note highlights the indicator's historical performance as a contrarian signal. Although currently in "Neutral" territory, which is less predictive than extremes, the SSI still points toward healthy returns.
BofA estimates a potential 13% increase for the S&P 500 over the next twelve months (NTM) based on this neutral reading. Historically, when the SSI has been at similar or lower levels, the S&P 500 has risen 94% of the time over the NTM.
Looking back at the first half of 2024, the S&P 500's strong performance was mirrored by increased equity allocations from strategists. However, BofA sees more potential in specific sectors moving forward.
While they acknowledge a "constructive backdrop" for equities, they believe opportunities may lie in cyclical areas rather than the broader market.