Bank of America: Analyst Sentiment Is Pointing to a Huge Rally in Stocks

Analysts are so bearish it's bulllish.

Maisonneuve: 4-5% Market Return a Reasonable Expectation

While the S&P 500 is already trading above Wall Street's year-end target for the index, there's one indicator that says now is still a great time to buy stocks. 

Bank of America Merrill Lynch's Sell Side Indicator — its proprietary measure of analysts' bullishness on the stock market — is sitting at its lowest level since 2013. Extreme pessimism on Wall Street has traditionally boded well for stocks, BofAML equity strategists led by Savita Subramanian said in a recent note.

"Historically, when our indicator has been this low or lower, total returns over the subsequent 12 months have been positive 100 percent of the time, with median 12-month returns of [more than] 27 percent," they wrote. "While sentiment has improved significantly off of the 2012 bottom, today's sentiment levels are well below last summer's high of 54.0 and where they were at the market lows of March 2009."

Bank of America Merrill Lynch

A high level of uncertainty partnered with slowing global growth and the potential for the Federal Reserve to raise interest rates again before the year-end might be exacerbating some of the sell-side's bearishness. September could also be an eventful month for markets, with a slew of upcoming data and political events. 

But the indicator is just one factor that goes into Bank of America's year-end target for the S&P 500. The bank expects the index to be nearly eight percent lower by the close of 2016.

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