Wall Street bullishness indicator

The “Wall Street bullishness indicator”, created and updated by analysts of Bank of America Merrill Lynch, is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month.

During the last three decades, Wall Street’s consensus equity allocation has been an amazing contrary indicator. This month’s decline pushed the indicator to 43.9, the lowest level since 1985 when the indicator was created, suggesting that Wall Street strategists are now more bearish on equities than they were at any point in the last 27 years.

The following chart represents the path of the indicator since inception:

From an operative point of view, a wise investor should by stocks at current price. In fact when the indicator has been below 50 total returns over the subsequent 12 months have been positive 100% of the time, with median 12-month returns of +30%.