Positive Returns 97% Of The Time
Based on current readings of their “sell side indicator”, Bank of America/Merrill Lynch (BOAML) recently wrote in a research note to clients:
“Historically, when our indicator has been this low or lower, total returns over the subsequent 12 months have been positive 97% of the time, with median 12-month returns of +25%,”
Recommended Stock Allocations Remain Low
The BOAML indicator is based on the recommended stock allocations inside portfolios. A typical benchmark equity allocation is 60%-65% of a portfolio. Presently, the recommended allocation is significantly below that range, coming in at 51%. If the recommendations moved back to the historical mean, as they typically do, money would continue to flow out of bonds and into stocks. More information about the BOAML signal can be found on Yahoo Finance.
A Separate Rare Signal Also Leans Bullish
Has any other longer-term signal appeared recently that aligns with the possibility of double-digit stock gains over the next 12 months? Yes, this week’s stock market video covers a monthly S&P 500 momentum and trend signal that has occurred less than 10 times over the past 23 years. The signal was triggered at the end of November. Even more importantly, the signal was also triggered recently in numerous risk-on ETFs, such as small-caps (IWM), mid-caps (MDY), energy (XLE), copper (JJC), materials (XLB), and the total stock market (VTI), which may be due in part to allocation shifts based on President-elect Trump’s platform. Bearish signals have been triggered in defensive assets such as bonds (TLT), utilities (XLU), consumer staples (XLP), and healthcare (XLV), which may be due in part to post-election shifts regarding growth, earnings, taxes, deficits, and inflation.