BofA Stock Indicator Sees S&P 500 Surging 16%

Wall Street’s outlook for U.S. stocks remains near a six-year low even after surging last month, a contrarian sign that suggests brighter times ahead, according to Bank of America Corp.

BofA’s Sell Side Indicator, which tracks sentiment toward U.S. equities on a monthly basis based on asset-allocation recommendations provided to the bank and Bloomberg, rose 0.33 percentage point to nearly 53% in June.

It was the biggest monthly increase since November for the sentiment reading, and it coincided with a 6.5% June rally for the S&P 500 Index, its best month since October.

With analysts remaining largely bearish, that pessimism provides a favorable backdrop for U.S. stocks.

The sentiment indicator has hovered within 2 percentage points of a contrarian “buy” signal for the past year, with the current level indicating 16% price return over the next 12 months, according to the bank’s analysis.

That would leave the S&P 500 trading at 4,800 by year-end, or 5,200 a year from now, BofA data show.

“Wall Street’s consensus equity allocation has been a reliable contrary indicator,” Savita Subramanian, an equity and quant strategist at the bank, wrote in a note to clients this week. “In other words, it has been a bullish signal when Wall Street strategists were extremely bearish, and vice versa.”

While the S&P 500 rallied 16% in the first half of 2023, BofA says its sentiment index barely budged, and is 0.16 percentage point below where it started the year.