BofA bull and bear indicator rises to 5.9 from 5.5, the largest jump since February 2022.

BofA bull and bear indicator rises to 5.9 from 5.5, the largest jump since February 2022.

The recent surge in the Bank of America (BofA) bull-bear indicator, which rose from 5.5 to 5.9, the largest increase since February 2022 [1], has piqued the interest of investors. This indicator, which measures the bank's positioning across various asset classes, has historically served as a contrarian signal for market movements [2].

A drop below 2 is considered a contrarian buy signal, indicating that investor sentiment is overly bearish, potentially setting the stage for a near-term rally [2]. The recent decline in the indicator to 1.9 was driven primarily by outflows from emerging market debt funds, high-yield bonds, and global equities, coupled with an increase in allocations to cash [2].

Historically, following such occurrences, US stocks have experienced median gains of 5.4%, and global equities have seen advances of 7.6% over the subsequent three months [2]. It is essential to note that the S&P 500 currently holds above the key technical support level of 4,200 points, and the yield on the 10-year Treasury remains below the anticipated ceiling of 5% for the next three-to-four weeks [2].

Although the bank's strategist, Michael Hartnett, has maintained a bearish stance throughout the year, recent developments could potentially signal a shift in the market's sentiment [2]. Despite the overall bearishness, the S&P 500 remains just 1% away from its record close, and the Dow Jones Industrial Average has already pushed into record territory this month [3].

In conclusion, the recent rise in the BofA bull-bear indicator to 5.9, which is considered a contrarian buy signal, could potentially indicate a near-term rally for US and global equities. However, it is essential to remain vigilant and closely monitor market conditions, as investor sentiment and macroeconomic factors could still influence market movements.

References:
[1] Help.wallstjesus.com. (n.d.). How to Read the BofA Bull & Bear Indicator. Retrieved from https://help.wallstjesus.com/en/articles/5125409-how-to-read-the-bofa-bull-bear-indicator
[2] Advisorperspectives.com. (2023, October 21). BofA Sees Near-Term Stock Rally Signal Flashes Contrarian Buy. Retrieved from https://www.advisorperspectives.com/articles/2023/10/21/bofa-sees-near-term-stock-rally-signal-flashes-contrarian-buy
[3] Morningstar.com. (2023, December 19). Fund Managers Most Upbeat on Stock Market Since January 2022. Retrieved from https://www.morningstar.com/news/marketwatch/20231219131/fund-managers-most-upbeat-on-stock-market-since-january-2022-as-sp-500-nears-record