- Bullish stock market investors are an "endangered species" on Wall Street, according to Bank of America.
- The bank highlighted overly bearish investor sentiment that suggests double digit returns for stocks going forward.
- "It has been a bullish signal when Wall Street strategists were extremely bearish, and vice
versa," BofA said.
The overall mood on Wall Street is bearish towards stocks, but that's actually good news for investors who are positioned for upside, according to Bank of America.
The bank, which tracks the equity allocation recommendations of Wall Street strategists via its Sell Side Indicator, said bullish stock market investors "are becoming an endangered species."
And Wall Street has plenty to be bearish about. There have been three major bank failures over the past two months, inflation remains elevated, the Federal Reserve is still hiking interest rates, and earnings are on shaky ground with the potential for an imminent recession.
Recommended equity allocations by Wall Street strategists stood at just 52.7% in April, which represents the lowest level in six years. But that pervasive bearishness suggests stocks could see big gains over the next 12 months, according to the note.
"Historically, when the SSI has been as low or lower, 12-month forward S&P 500 returns were positive 94% of the time (vs. 81% overall). Even if we factor in a distribution approach to control for higher returns from 1985 to now, this still yields a year-end forecast of 4,500," BofA's Savita Subramanian said.
A surge to 4,600 in the S&P 500 would get it close to testing its all time highs and represents potential upside of 10% from current levels.
The indicator is contrarian in the sense that when everyone is bearish, it pays to get bullish on stocks.
"It has been a bullish signal when Wall Street strategists were extremely bearish, and vice versa," Subramanian said.
And Wall Street could still get more bearish, with a "buy trigger" for the Sell Side Indicator being reached if equity allocation recommendations falls another 1.3% to 51.4%, according to the note.
"The shift from equity love to bond love since last year is one reason we see upside risks to stocks vs. bonds. Investors are positioned for a 2009-style recession. It's hard to find an unequivocally bullish investor today," Subramanian said.