BofA's indicator is signaling S&P 500 will rise 13% over next 12 months

Bank of America analysts remain optimistic about the stock market, despite the hesitation of strategists to increase equity allocations in June.

The bank's Sell Side Indicator (SSI), a contrarian sentiment gauge, stayed at a two-year high of 55.3%. This indicates that while strategists are cautious about the rally's sustainability, they haven't pulled back from equities.

The BofA note highlights the indicator's historical performance as a contrarian signal. Although currently in "Neutral" territory, which is less predictive than extremes, the SSI still points toward healthy returns.

BofA estimates a potential 13% increase for the S&P 500 over the next twelve months (NTM) based on this neutral reading. Historically, when the SSI has been at similar or lower levels, the S&P 500 has risen 94% of the time over the NTM.

Looking back at the first half of 2024, the S&P 500's strong performance was mirrored by increased equity allocations from strategists. However, BofA sees more potential in specific sectors moving forward.

While they acknowledge a "constructive backdrop" for equities, they believe opportunities may lie in cyclical areas rather than the broader market.

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