Investor bullishness for stocks is improving, but Wall Street’s optimism is still below levels seen in March 2009, when the S&P 500 Index SPX and the Dow Jones Industrial Average DJIA had both cratered more than 50% from previous highs to 667 points and 6,470 points, respectively.
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Bullish sentiment for stocks in August reached a 16-month high, according to Bank of America Merrill Lynch’s Sell Side Indicator. The contrarian indicator — which tracks the average weighting strategists are recommending for stocks, signalling a buy when Wall Street is bullish and vice-versa — reached a level of 52.9 in August from July’s 52.3, said Savita Subramanian, B. of. A’s equity and quant strategist, in a note Tuesday.
That level’s just shy of the 53 reading in March 2009 and below the current “buy” threshhold of 54.6, and both fall below the long-term benchmark average stock weighting of 60% to 65%. The indicator hit an all-time low of 43.9 in July 2012, when the Dow industrials were in the neighborhood of 13,000 and the S&P 500 finished the month around 1,380.
“With the S&P 500’s indicated dividend yield above 2%, that implies a 12-month
price return of 17% and a 12-month value of 1,906,” Subramanian noted. “Although this is not our S&P 500 target, this model is an input into our target, which incorporates valuation, sentiment and technicals.”
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