Time could be running out for U.S. equities.
Stocks have continued to hit new highs this year despite concerns over global growth, geopolitical events and an earnings recession. That dissonance may be coming to an end as analysts at Bank of America Corp. predict we are approaching the market’s last hurrah. The crux of the argument is that the firm’s contrarian sell side indicator, which measures Wall Street’s bullishness on equities, jumped to a six-month high in November, its biggest gain in more than a year. Right now, the index is pointing toward a rally of almost 20 percent for U.S. stocks over the next 12 months, but the analysts believe that a rally of that magnitude could mark the end of the bull run.
“[T]he post-election bounce in Wall Street sentiment could be the first step toward the market euphoria that we typically see at the end of bull markets and that has been glaringly absent so far in the cycle,” a team led by Savita Subramanian, head of U.S. equity and quantitative strategy at the firm, wrote in a note Thursday.
“The Sell Side Indicator does not catch every rally or decline in the stock market, but the indicator has historically had some predictive capability with respect to subsequent 12-month S&P 500 total returns,” the bank said.