Stocks plunged into declines, the closest they’ve come to ‘bought’ since 2017, according to a leading indicator

As the stock-market rout appears to have no end in sight, an equity indicator built by Bank of America offers a ray of hope.

The bank’s so-called sell-side indicator, which aggregates the asset allocation views of Wall Street strategists, fell 33 basis points in December and is now 1.5 percentage points away from levels that have historically been tied to a good buying opportunity. At current levels, the indicator is the closest to signaling a ‘buy’ since 2017.

“One reason we are more bullish on equities in 2023 is the large decline in sentiment during 2022,” Bank of America strategists including Savita Subramanian wrote in a note to clients. “It’s a strong signal when Wall Street strategists are very bearish, and vice versa.”

If sentiment is quick to change, it didn’t show Tuesday. After declining 19% in 2022, the S&P 500 Index fell 0.4% on the first trading day of 2023 as investors continued to evaluate the outlook for growth stocks. Tesla Inc. fell the most since 2020 after deliveries in the fourth quarter missed estimate, despite the electric-carmaker offering incentives in key markets. and Apple The shares of Inc. also decreased which pushed the iPhone maker’s market value UNDER $2 trillion.

Whether the rebound will happen this time around is anyone’s guess, with much likely depending on the Federal Reserve’s path to raising interest rates. According to Bank of America strategists, the negative sentiment should help the S&P 500 reach 4,000 by the end of the year, a level that represents a 4.6% jump from its close on Tuesday.

Sentiment indicators have become questionable investment tools in 2022, with readings historically linked to rebounds that precede larger declines. But as the rout continued to mount, S&P 500 valuations became more reasonable, strengthening the case for cash-strapped investors to jump in. reading this century.

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