The best stocks on Wall Street are so bullish that contrarian indicators are about to signal a sell.
Bank of America analysts led by Savita Subramanian (Savita Subramanian) said in a report on Thursday that the bank sell-side indicator, which tracks the average stock allocation recommended by Wall Street sell-side strategists, was the third consecutive month in March. The monthly increase, from 59.2% to 59.4%. In February.
This puts the indicator at its highest point in ten years and is far from the counter-trend “sell” signal (less than the highest point since May 2007) when the signal was the S&P 500 Index SPX.
It fell by 7% in the following 12 months (see table below).
Investors and analysts pay close attention to a series of emotional measures. Extremely bullish or bearish readings are usually seen as a contrarian signal, indicating that the market will rebound or pull back.
The S&P 500 broke the 4,000 milestone for the first time on Thursday, while the Dow Jones Industrial Average, the Dow Jones Industrial Average,
The transaction is not far from its historical high. The U.S. stock market rose in the first quarter, led by cyclically sensitive stocks, as aggressive fiscal stimulus measures and rapid vaccine launches stimulated expectations for a post-COVID economic boom.
The analyst wrote: “The increase in euphoria is the key reason for our neutral outlook, because cyclical rebounds, vaccines, stimulus measures, etc. have been priced by the market.” After entering the big bear market, the stock market rebounded rapidly. As the pandemic became popular, the bear market bottomed out.
Analysts pointed out that since March last year, the average recommended equity allocation has more than tripled. In the past 12 months, the index has risen 450 basis points, or 4.5 percentage points, compared to an average of 138 basis points after the previous bear market.
They wrote: “We found that Wall Street’s bullishness is a reliable indicator of contrarian trends.”
At present, this indicator is still in the “neutral” range. What does this mean for revenue?
Analysts pointed out that when the indicator reached or fell below the current level, the subsequent 12-month return has been 89%. Although this is encouraging, they observe that the current reading of the indicator is consistent with a 12-month return of 6%, which is well below the 12-month average expected 14% since the 2008 global financial crisis, and complements the standard. Please note that past performance does not represent future results.
Analysts said it’s best for investors to focus on areas that are sensitive to the real economy, including cyclical stocks and value stocks, capital expenditure beneficiaries and small caps, as US President Joe Biden is trying to promote it. A trillion-dollar infrastructure spending plan.
“But it’s not all blue skies. They warn that the market appears to be pricing in other stimulus measures, and the focus is shifting to repayment (i.e. higher taxes). “Today’s valuations indicate that long-term gains are not high, and interest rates are rising. It also poses a disadvantage to these two income investors, because they have flooded the stock market in large numbers under the background of low interest rates and corporate profit margins. “
They also believe that there is room for volatility to rise in the second half of the year. Having said that, they wrote: “Keeping investment is an underestimated way to avoid losses.” They focus on the fundamental factors above motivation and the positioning factors for long-term success. They say that focusing on quality stocks that are “cheap and overlooked” can also hedge against volatility.