Wall Street investment professionals are even more pessimistic about stocks now than they were during the 2008 crisis.
Bank of America (BofA) sentiment data shows that equity exposure has fallen below 53 percent among market strategists on Wall Street.
“It was a bullish signal when Wall Street strategists were extremely bearish,” according to BofA.
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According to an analysis of Bank of America Wall Street investment pros are becoming increasingly bearish on US stocks. But this bad sentiment could give investors a strong signal that it’s time to buy.
In fact, Wall Street strategists are now the most bearish on stocks since the Great Financial Crisis of 2008-2009, the release said.
The bank’s sell-side indicator polls a panel of investment strategists for their recommendations for asset allocation across stocks, bonds and cash. In the past, the indicator has served as a reliable counter-signal to buy or sell stocks.
Stocks are about to ‘flash’
“It was a positive signal when Wall Street strategists were extremely bearish and vice versa,” said Savita Subramanian of Bank of America.
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At the moment, the indicator suggests that a contrarian buy signal for stocks is about to flash. The indicator fell to 52.7 percent, down from the 53 percent low reached in March 2009. The indicator needs to fall another 1.3 percentage points to trigger a contrarian buy signal, the release said.
But even if the indicator stops falling, it could be a sign that the stock market is poised for solid gains.
Fear of another financial crisis
The current level of the BofA sales indicator suggests that the S&P 500 will rise 16 percent over the next 12 months, taking the S&P 500 to its previous all-time high of about 4,800 points.
“Historically, the S&P 500’s trailing 12-month returns have been positive 94 percent of the time (vs. 81 percent overall) when the sell-side indicator was this low or lower, with a median 12-month return of 22 percent,ā Subramanian said.
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The reasons for the pessimistic stance of investment strategists are likely the recent collapse of Silicon Valley Bank and fears that the next financial crisis is imminent, the release said. However, should these fears prove unfounded, the stock market is poised for big gains as much of the bad news has already been priced in.
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