S&P 500: BofA’s top indicator is ‘getting bullisher and bullisher’

– Bank of America analysts told investors in a note Tuesday that their top contrarian sentiment indicator, the Sell Side Indicator (SSI), is “getting bullisher and bullisher” as strategists continue to increase their allocation to equities.

The investment bank states that in August, the SSI rose by 61 basis points to reach 56.2%, marking its highest level in nearly 2.5 years.

This is the second consecutive month of improvement, driven by strategists’ growing optimism despite early volatility in the markets.

BofA says that after being encouraged by signs of improving market breadth and Federal Reserve Chair Jerome Powell’s dovish remarks at Jackson Hole, strategists have been adding to their equity allocations.

“The SSI has been a reliable contrarian indicator. In other words, it has been bullish when Wall Street was extremely bearish and vice versa,” writes BofA.

Currently, the SSI remains in Neutral territory, but the banks say it is inching closer to a Sell signal.

Bank of America notes that this is the closest the indicator has been to a Sell since January 2022, now just 1.8 percentage points away, compared to 4.9 percentage points from a Buy.

Despite the increasing bullishness among sell side strategists, the bank adds that buy side positioning reveals a more cautious approach.

Funds are said to have been selling off cyclical sectors like Materials, Energy, and Discretionary, and have maintained very low exposure to Beta.

Additionally, the latest Bank of America Fund Manager Survey reported lower growth expectations and reduced risk appetite among investors.

On the retail side, BofA says sentiment has also shown signs of recovery, with the American Association of Individual Investors (AAII) bull-bear spread at 24% net bullish, rebounding from a 3% dip in early August.