Fairness sentiment inches larger, one step nearer to euphoria: BofA

Investing.com — Investor sentiment is climbing, with Financial institution of America analysts noting a 33-basis-point enhance of their Promote Facet Indicator (SSI) to 57.0% in December. 

BofA states that sentiment is “one step nearer to euphoria” in its be aware Thursday. 

The SSI, which tracks sell-side strategists’ really useful fairness allocations in balanced funds, resumed its ascent after pausing final month, in keeping with the financial institution.

Regardless of the S&P 500 experiencing its worst month since April, falling 2.4%, sentiment improved, marking the longest uninterrupted rise within the SSI since 2021.

BofA explains that at 57.0%, the SSI is at its highest degree since early 2022 and stays in “Impartial” territory. 

Nevertheless, it’s mentioned to now be simply 1 proportion level shy of a “Promote” sign, a threshold related to extra modest ahead returns. 

The financial institution says that traditionally, the SSI has been a contrarian sign, indicating bullish situations when Wall Road sentiment is bearish and vice versa. 

Based on BofA, “The SSI’s present degree of 57.0% means that the 20%+ annual returns we’ve seen over the previous two years are probably behind us, however nonetheless factors to a comparatively wholesome worth return of 10% over the following 12 months.”

Moreover, BofA’s Fund Supervisor Survey reportedly revealed a major shift from money to equities final month, with 30% of respondents predicting U.S. equities shall be 2025’s top-performing asset class.

The financial institution says client confidence can also be strong, with 53% anticipating inventory costs to rise over the following 12 months, primarily based on the Convention Board’s survey.

Whereas heightened optimism raises the chance of complacency, BofA notes that bullish sentiment can persist for prolonged durations earlier than market peaks. “Like right this moment, the SSI was roughly 1ppt away from ‘Promote’ in February 2021, 10 months earlier than the market peaked. The S&P 500 returned 27% throughout that point,” wrote BofA.