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.
