BofA's indicator pointing to a 13% rise in the SP500 over the next 12-month period

Even though strategists hesitated to raise equity allocations in June, Bank of America analysts are still bullish on the stock market.

The Sell Side Indicator (SSI) of the bank, which measures contrarian sentiment, remained at its two-year high of 55.3%. This suggests that even while analysts are hesitant to call the gain a sustainable one, they haven't sold stocks.

The indicator's track record as a contrarian signal is highlighted in the BofA paper. Despite being less predictive than extremes, the SSI nevertheless indicates strong returns even if it is now in "Neutral" area.

Based on this neutral rating, BofA projects a potential 13% gain for the S&P 500 during the next 12 months. In the past, the S&P 500 has increased 94% of the time over the 12 months that followed when the SSI has been at comparable or lower levels.

Upon reflection on the first half of 2024, strategists' higher equities allocations were consistent with the S&P 500's good performance. Still, BofA believes that certain industries have greater promise in the future.

Although they recognise that there is a "constructive backdrop" for stocks, they think that cyclical sectors rather than the overall market may provide possibilities.

(Sources: investing.com, reuters.com)