LIVE MARKETS-Buoyant stock optimism sparks BofA sell signal

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BUOYANT STOCK OPTIMISM SPARKS BOFA SELL SIGNAL

A “huge inflow” into equity exchange-traded funds helped to spark a contrarian sell signal for Bank of America’s Bull & Bear Indicator, a warning that risky assets may be running too hot.

BofA analysts led by Michael Hartnett note that the Bull & Bear Indicator rose to 8.5, from 7.9, triggering the signal.

When the indicator rises over 8 it indicates “extreme bullishness” and historically has been followed by a median decline in global stocks of 2.7% in the following two months.

The indicator has registered 16 sell signals since 2002 with a 63% hit ratio. Maximum drawdowns one month, two months and three months after the sell signal were 4%, 6%, and 9% respectively.

Bank of America notes that investors are positioned for "'run-it-hot’ macro & policy expectations,” with global growth and earnings per share expectations the highest since August 2021.

The bank’s Global Fund Manager Survey shows that investors have the lowest cash level since 1998, at 3.3%, and their allocation to stocks and commodities is the highest since February 2022.

Other factors that helped to trigger the signal were rising global stock index breadth and hedge funds cutting length in VIX futures, BofA said.

(Karen Brettell)

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