Investing.com -- Investor optimism is reaching new heights on Wall Street, according to Bank of America’s Sell Side Indicator (SSI), which rose 50 basis points to 56.7% in October.
The metric, a contrarian sentiment gauge that tracks sell-side strategists’ average recommended equity allocations, has now climbed to its highest level in over two and a half years, according to the bank.
BofA reports that the SSI’s recent climb marks the largest 12-month increase since mid-2021, with equity sentiment rising 3.6 percentage points in the past year, coinciding with a substantial 38% rally in the S&P 500.
Despite the bullish tilt, BofA maintains that the SSI remains in Neutral territory—albeit inching closer to a contrarian Sell signal.
BofA explains that currently, the indicator is just 1.4 percentage points away from this threshold, which traditionally implies caution for future gains.
At its current level, the SSI suggests an estimated 11% price return for the S&P 500 over the next 12 months, in line with the index’s historical average yet below its recent impressive performance.
The increase in equity allocations is said to have largely come at the expense of bond allocations, which declined by 3.1 percentage points over the past year.
Additionally, other factors like near-record passive equity inflows and declining mutual fund cash levels are seen as signaling rising investor enthusiasm.
However, BofA cautions that elevated sentiment could limit broader market upside, advising investors to “stay selective” and focus on specific areas within the index.
Bank of America recommends targeting stocks in “unloved” sectors, specifically large-cap value stocks, high-dividend payers, and cyclicals, where idiosyncratic risk remains high and pairwise stock correlations are low.