Wall Street's optimism towards U.S. equities showed signs of softening in March, although it has not yet reached levels that would trigger a contrarian buy signal. According to a report issued on April 1 by Bank of America equity and quant strategists Victoria Roloff and Savita Subramanian, the Sell Side Indicator (SSI) revealed that the average recommended stock allocation by Wall Street strategists dipped slightly from 56.0% to 55.7%. This shift occurred as the S&P 500 declined 5% for the month, driven by heightened geopolitical tensions. Despite this marginal cooling in sentiment, the indicator remains closer to signaling "sell" than "buy," with a considerable distance still to cover before entering the contrarian buy zone.
This marks the first reduction in strategists' average recommended equity allocation in over six months. However, the decrease was a mere 30 basis points, approximately one-fifth of the decline seen after last April's tariff announcement, indicating a relatively mild sentiment adjustment. The current SSI reading is only 1.9 percentage points away from its "sell" signal threshold but remains 4.4 percentage points above its "buy" signal threshold. It also sits notably below the levels typically exceeding 59% seen during historical market peaks.
On the fundamental front, Bank of America maintains its year-end target of 7100 for the S&P 500, implying a potential price return of approximately 9% from current levels, which is higher than its modest expectations at the start of the year. Concurrently, the bank's economists have revised down their forecast for 2026 U.S. real GDP growth from 2.8% to 2.3%. Despite this, Bank of America believes that, barring a further substantial deterioration in the economic outlook, S&P 500 earnings per share (EPS) can still achieve healthy double-digit growth.
The SSI is a contrarian sentiment indicator tracked by Bank of America, measuring the average recommended stock allocation within balanced funds by Wall Street sell-side strategists. Its buy and sell signal thresholds are set at one standard deviation above and below a 15-year rolling average. The current "sell" threshold is 57.6%, and the "buy" threshold is 51.3%. The latest reading for March is 55.7%, placing it in the neutral-to-high range between the two.
Bank of America notes that the March dip is the first decline in six months, triggered by rising geopolitical risks that led to the S&P 500's worst monthly performance in nearly a year. However, the magnitude of this adjustment is far less severe than previous major market shocks; the indicator's drop following last April's tariff announcement was about five times larger. This suggests that, despite noticeable market volatility, the overall sentiment among Wall Street strategists has not undergone a fundamental shift.
Historical data indicates that when the SSI is in the "buy" zone, the S&P 500 has delivered an average 12-month return of 20.5%, with a median return of 19.7%. Conversely, when in the "sell" zone, the average return is a mere 2.7%, with a 38.9% probability of negative returns. The current indicator reading implies an approximate 12.5% price return for the S&P 500 over the next 12 months.
Despite the cooling sentiment, Bank of America views the fundamental backdrop as remaining robust. S&P 500 earnings expectations for 2026 were revised up by 2% in March, pushing the consensus year-on-year growth rate to 17%. Meanwhile, the index's forward price-to-earnings ratio has declined by approximately 15% from its recent peak in late October, alleviating some valuation pressures.
Bank of America maintains its forecast of $310 for S&P 500 EPS, representing year-on-year growth of about 13%. The report states that moving from current levels to the year-end target of 7100 implies a price return of around 9%.
Bank of America economists have lowered their 2026 U.S. real GDP growth forecast primarily due to the economic drag from rising oil prices. Nevertheless, the bank believes the impact of this macroeconomic headwind on overall S&P 500 profits is relatively limited. The report explains that energy costs constitute a relatively small portion of the total operating costs for S&P 500 constituents. Rising oil prices primarily pressure specific sectors rather than posing a systemic threat to the index's overall earnings. Under a baseline scenario where the economic outlook does not deteriorate further substantially, Bank of America believes S&P 500 EPS can still achieve healthy double-digit growth and maintains its full-year EPS forecast of $310.
Historically, the SSI has been a reliable contrarian indicator. It is noteworthy that Wall Street strategists consistently recommended underweighting stocks throughout the bull markets of the 1980s and 1990s, as well as during the 2009 to 2020 bull run. The 2008 global financial crisis pushed the indicator below the traditional balanced fund equity allocation benchmark range of 60% to 65%, reaching a historical low of 43.9% in 2012. While the current reading of 55.7% has recovered significantly from that bottom, it remains below the traditional benchmark range, reflecting a structural shift in Wall Street's overall allocation style post-financial crisis.
This indicates that, as a group, sell-side strategists have been in a state of systematic underweighting of equities—this is the fundamental reason why the indicator works on a contrarian logic. When they become extremely bullish, it often signals that upside potential has already been fully priced in. The current reading of 55.7% remains above the post-financial crisis average but is still a considerable distance from historically extreme optimism.
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