As the stock market rout is not in sight, equity indicators built by Bank of America offer hope.
The so-called bank-side indicator, which incorporates the asset allocation view of Wall Street strategists, fell 33 basis points in December and is now 1.5 percentage points away from levels historically tied to good buying opportunities. At current levels, the indicator is the closest to a ‘buy’ signal since 2017.
“One of the reasons we are more constructive on equities in 2023 is the decline in sentiment during 2022,” Bank of America strategists Savita Subramanian wrote in a note to clients. “It has been a bullish signal when Wall Street strategists are very bearish, and vice versa.”
If sentiment is inclined to change late, it did not appear on Tuesday. After falling 19% in 2022, the S&P 500 Index fell 0.4% on the first trading day of 2023 as investors continued to evaluate the prospects for growth stocks. Tesla Inc. fell the most since 2020 after fourth-quarter deliveries missed estimates, even as electric carmakers offered incentives in key markets. And shares of Apple Inc. is also down, as the iPhone maker’s market value is below $2 trillion.
Whether the rebound will happen this time is anyone’s guess, with many possibilities contingent on the Federal Reserve’s path of interest rate hikes. For Bank of America strategists, negative sentiment should help the S&P 500 reach 4,000 by the end of the year, a level that represents a 4.6% jump from Tuesday’s close.
Sentiment indicators have become a questionable investment tool in 2022, with historical readings associated with rebounds before larger declines. But as the rout continued, valuations on the S&P 500 became more reasonable, strengthening the case for investors with cash to jump in. read this century.
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