Investing.com — Investor sentiment is rising, as Bank of America analysts note a 33-point increase in their Sell Side Indicator (SSI) to 57.0% in December.
BofA said the sentiment was “one step closer to euphoria” in its note on Thursday.
The SSI, which tracks retail strategists’ recommended allocations to outstanding funds, has resumed its rise after a pause last month, according to the bank.
Despite experiencing the worst month since April, down 2.4%, sentiment improved, marking the SSI’s longest uninterrupted rise since 2021.
BofA explains that at 57.0%, the SSI is at its highest level since the beginning of 2022 and remains in a “neutral” position.
However, it is said that it is now only 1 point shy of a “Sell” signal, a limit that corresponds to a modest forward return.
The bank says that historically, the SSI has been a contrarian signal, indicating bullish conditions when Wall Street sentiment is bearish and vice versa.
According to BofA, “The current SSI rate of 57.0% suggests that the 20%+ annual gains we’ve seen over the past two years may be behind us, but they still point to a healthy 10% price return over the next 12 years. months.”
In addition, the BofA Fund Manager Survey reportedly revealed a significant shift from cash to stocks last month, with 30% of respondents predicting US equities will be the best-performing asset class in 2025.
The bank says consumer confidence is also strong, with 53% expecting stock prices to rise next year, based on a Conference Board survey.
While the rising optimism raises the risk of complacency, BofA notes that bullish sentiment may persist for a long time before markets rise. “As of today, SSI was far from ‘Sell’ in February 2021, 10 months before the market spiked. The S&P 500 returned 27% during that period,” BofA wrote.
