A reliable buy signal just flashed for the stock market as most investors expect a Goldilocks scenario for the economy – DIGIWIZ CENTRAL

A reliable buy signal just flashed for the stock market as most investors expect a Goldilocks scenario for the economy

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A reliable buy signal just flashed in the stock market, according to Bank of America.Cash allocations among professional investors jumped above the 5% threshold that typically signals stock market gains.The buy signal comes as most investors continue to expect a Goldilocks economic scenario.

A reliable buy signal just flashed in the stock market, according to Bank of America’s global fund manager survey.

The survey, which gauges the sentiment of professional investors on Wall Street, showed that cash allocations among respondents jumped above the 5% threshold. That triggers a contrarian buy signal for stocks, according to the bank, and it has historically preceded solid gains ahead.

“Since 2011, the ‘buy’ signals would have seen S&P 500 returns of 2% in the two months after, 4% in the three months later, [and] 7% in the six months after,” Bank of America’s Michael Hartnett said.

The average cash allocation of the survey respondents rose to 5.3% in October from 4.9% in September. It briefly jumped above 6% in October 2022, which represented the bottom for the 2022 bear market. 

While increasing cash allocations suggest investors are turning more cautious towards stocks, the majority of investors still expect a Goldilocks scenario for the economy.

According to the note, 64% of respondents said they expect the global economy will pull off a soft landing or won’t slow down at all over the next 12 months. That’s more than double the 30% of investors who expect a hard landing will materialize in the form of a recession. 

Other consensus views held by the survey respondents include lower interest rates and bond yields over the next 12 months, a bounce in optimism surrounding China’s economic growth, and consistently lower inflation going forward.

That all suggests to Hartnett that the S&P 500’s support level at 4,200 now represents a “hard fourth-quarter floor” for stock prices heading into year-end, assuming that the 10-year US Treasury yield stays below 5%. The S&P 500 successfully tested the 4,200 level as support in early October. 

Bank of America

Read the original article on Business Insider
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