Bank Of America Contrarian Indicator Implies 18% S&P 500 Upside

The latest data from Bank of America indicates that Wall Street doesn’t have a particularly bullish outlook for the stock market at the moment. However, contrarian investors, as well as Bank of America analyst Savita Subramanian, know that periods of market uncertainty and pessimism can often be the best buying opportunities.

The Numbers

Bank of America’s Sell-Side Indicator currently sits at 53.1, right on the border between Buy and Neutral territory. The Sell-Side Indicator is generated by pooling the average equity allocation of Wall Street strategists to gage their sentiment level.

Subramanian noted that sentiment has improved significantly since its 2012 lows, but it currently remains near the depressed levels seen during the Financial Crisis market bottom in March of 2009.

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Projected Returns

According to the Sell-Side Indicator, the S&P 500 is projected to return 18 percent (including dividends) over the next 12 months, implying a one-year S&P 500 peak of 2404. Subramanian noted that Bank of America’s target for the S&P 500 is not quite so ambitious, but that the firm does incorporate the contrarian indicator when making market projections.

Reliability

Historically, when the Sell-Side Indicator has been at its current level or lower, the S&P 500 has gone on to generate positive one-year returns 96 percent of the time. Subramanian noted that the indicator has been an extremely reliable contrarian market monitor. “In other words, it has historically been a bullish signal when Wall Street was extremely bearish and vice versa,” he explained.

The S&P 500 has delivered a lackluster 2015 to this point, climbing only 1.6 percent year-to-date.