Bank of America Analysts’ Insights

Investing.com reports that Bank of America (BofA) analysts expressed views on market sentiment in a note released Tuesday. Despite elevated equity market sentiments, investors show selective bullishness, favoring sectors with secular growth while remaining cautious about others.

Current Sentiment

According to BofA’s Sell Side Indicator (SSI), which tracks the average recommended equity allocation by sell-side strategists, sentiment remained unchanged at 56.2% in September, marking the highest level in 2.5 years.

Although the SSI remains in ‘Neutral’ territory, BofA noted it is closer to a contrarian ‘Sell’ signal. It is 1.8 percentage points from a sell indicator and 4.9 percentage points from a buy signal, suggesting that even with improved sentiment, investors are wary of market risks, particularly those tied to the labor market’s health.

Indicator Reliability

BofA pointed out that the SSI has historically been a reliable contrarian indicator, often signaling bullish trends when Wall Street is overly bearish and vice versa. The current SSI level suggests a potential price return of 11.5% for the S&P 500 over the next 12 months—a solid figure, albeit lower than historical averages.

Selective Investing

Despite the optimistic outlook, analysts believe investors will be more selective in their stock picks, emphasizing a Tech- and growth-heavy positioning. However, BofA anticipates cyclicals may outperform defensives, driven by corporate profit acceleration.

Consequently, BofA has raised its allocation to Materials, predicting cyclical leadership in the upcoming months. The analysts concluded, “Overall, we prefer cyclicals over defensives, and have raised Materials to overweight alongside this report.”