Wall Street sell-side strategists have become most bearish in 15 years3 July, 2012, 14:24. Posted by Zarathustra
Sell-side research is not normally known for being bearish. In fact, sell-side is known for being permanently too bullish, and most of the sell-side research community hardly ever predicted any crises.
Perhaps no longer?
Bank of America Merrill Lynch’s Sell Side Indicator suggests that even Wall Street sell-side are getting bearish, and the bearishness of sell-side research houses has remarkably hit a 15-year low. Sell-side strategists, remarkably, have become more bearish now then they were during the collapse of Tech Bubble and the bust of housing bubble.
According to the team at BofA/ML, this has been a rather reliable contrarian indicator:
The Sell Side Indicator is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month. We have found that Wall Street’s consensus equity allocation has historically been a reliable contrary indicator. In other words, it has historically been a bullish signal when Wall Street was extremely bearish, and vice versa.
Surely, it is understandable that people are getting most bearish in quite a while, as everyone and his/her mother is calling for the break-up of the euro area, which could be rather disastrous. This probably also explains why the EU summit managed to surprise the market with so little being done, because you could not have been disappointed if you had absolutely no expectation.
Source: Bank of America Merrill Lynch