Sell side equity sentiment reaches highest level since May 2022

investmentweek.co.uk:

The indicator tracks sell side strategists’ average recommended allocation to equities in a balanced fund.

The indicator, which tracks sell side strategists' average recommended allocation to equities in a balanced fund, reached its highest level since May 2022, seeing its largest month-on-month increase during December for over three years.

Despite this, the indicator now only sits at its 15-year average, as sentiment has «sluggishly improved», BofA noted. Recommended equity allocation increased just 1.6 percentage points over the last year, compared to a six percentage point drop in 2022.

«The SSI's current level indicates an expected 12-month price return of 13.5% or 5,400 for the S&P 500 by year-end 2024,» BofA noted.

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The boost in equity sentiment has largely come from cash, with the average recommended cash allocation now sitting at just 1.9%, a record low for the survey.

Meanwhile, bonds still remain high in popularity, sitting in the 88th percentile for historical fixed income allocation preferences, though they had a slight 20bps decrease throughout the year (compared to a six-percentage point increase in 2022).

BofA speculated this maybe due to expectations that the Federal Reserve will «aggressively ease in 2024, and that GDP growth will disappoint, driving a flight to quality», or long bonds.

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