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Bank of America: Bull Market Drawing To A Close

Thursday, December 1, 2016 11:35
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Pointing to a relatively reliable indicator, analysts at Bank of America/Merrill Lynch on Thursday noted that the post-crisis rally in stocks might finally be nearing an end.

The crux of the firm’s argument is the fact that analyst sentiment has swung dramatically bullish, marking the first time this has happened since the rally began. Historically speaking, this sort of swing is typically followed by a bear market for stocks. From Bloomberg:

“[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.

Screen Shot 2016-12-01 at 8.36.37 AM
Bank of America Corp.

This indicator isn’t perfect, of course. But it has had some past success in identifying market sea changes:

“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.

In terms of actual predictions, the firm has a bullish case for the S&p 500 ending 2017 at 2,700, and a bearish case where the benchmark index drops 27% from current levels to 1,600.

The iShares S&P 500 Index ETF (NYSE:IVV) fell $0.21 (-0.09%) to $221.32 per share in Thursday morning trading. Year-to-date, the second largest fund tied to the S&P 500 has gained 8.09%.

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