BofA’s indicator shows stock market sentiment unchanged post-election

Investing.com — Bank of America said its Sell Side Indicator (SSI), which gauges equity allocation recommendations by sell-side strategists, remained steady at 56.7% in November.

This level is the highest since early 2022 and was maintained even as the experienced its strongest month of the year.

“The pause in sell side equity sentiment post-election may reflect a mixed perception of policy impacts under Trump 2.0, with greater inflation and rates uncertainty weighing against optimism around de-regulation, lower taxes and pro-growth policy,” BofA strategists led by Savita Subramanian said in a note.

The SSI, considered a contrarian signal, reflects strategists’ average recommended equity allocation in a balanced fund. The indicator’s current position in the Neutral territory is closer to a contrarian Sell signal than a Buy, with a 1.4 percentage point difference to the Sell threshold versus a 5.4 percentage point difference to the Buy threshold.

The indicator’s current level signals an 11% price return for the S&P 500 over the next 12 months. This forecast is one of the components Bank of America used to set its year-end 2025 target for the S&P 500 at 6,666.

The bank also highlighted a shift in bond sentiment, which has deteriorated due to significant underperformance this year. The average recommended bond allocation decreased by 2.9 percentage points, with a corresponding increase in equity allocation by 2.0 percentage points.

“Although equity sentiment and valuation are currently elevated, we still see ample reason to stick with stocks over bonds for the long-term,” strategists noted.

For the equal-weighted S&P 500, BofA said the valuation points to potential annual price returns of 5-6% over the next decade, not including dividends.

Meanwhile, treasuries continue to face headwinds, including reduced foreign demand and increasing sovereign risk as the US debt-to-GDP ratio continues to climb.