Bank of America’s contrarian stock indicator is the closest it’s been to a “buy” level since 2017.
The bank’s sell-side indicator, which aggregates strategists’ asset allocation views, fell 33 basis points (bps) in December and is now 1.5 percentage points away from the level that’s historically tied to a good buying opportunity.
The indicator declined to a reading of 53% last month as the S&P 500 was hit by a monthly drop of around 6%. The index fell over 19% for the year.
When the indicator was at current levels or lower historically, the S&P 500’s returns over the subsequent 12 months were positive 95% of the time, while the median 12-month return was 21%, according to a note from BofA researchers.
While the sell-side indicator remains in “neutral” territory, it ended 2022 just close to the “buy” signal.
The indicator suggests an expected price return of 16% for the S&P 500 over the next 12 months to around 4,400 according to the BofA strategists.