Bank of America investor sentiment gauge sees biggest rise in 11 months

By Steve Goldstein

Bank of America's bull and bear indicator just saw its biggest rise in 11 months, a sign of growing if not yet bubbly investor sentiment.

The bull and bear indicator, a cross-asset measure of investor sentiment, rose to a reading of 6 from 5.4, its strongest weekly rise since Dec. 2023, the bank said Friday. That was driven by strong inflows to emerging market stocks EEM as well as robust credit market technicals, the bank said.

The indicator uses fund flows, positioning data and market technicals to quantify investor sentiment. The bank says it sends a sell signal when it exceeds the "greed" level of 8 and a buy signal when it falls below the "fear" threshold of 2.

The rise in sentiment comes as the Hang Seng HK:HSI has quickly become the world's best performing market of the year, driven by China's monetary stimulus and its politburo's commitment to do more to boost its ailing economy. Bank of America strategists led by Michael Hartnett said China assets are soaring on the "classic" combination of bearish positioning, bearish profit expectations and policy shock.

While investors remain skeptical, the analysts said, structural bears will be forced into the market by China's bond yield BX:AMBMKRM-10Y rise from a 2% floor, an improvement in house prices from the current 6% year-over-year decline, and upward revisions to China GDP estimates, which happened after the stimulus packages of 2008, 2016 and 2020.

The strategists said the upside could be 30% if China's share of the global stock market matches its 2018 high of 4%, or 40% if China's price-to-earnings ratio rises from 11 to 12 times now to a range of 15 to 16, which was the average peak following the three preceding China policy shocks.

They say the question that isn't asked often is what goes down if China goes up, to which they respond the U.S. dollar DXY and, given they have been beneficiaries of the Anything But China trade, Japan and India.

The iShares MSCI China ETF MCHI has gained 35% this year while the iShares MSCI Japan ETF is up 11%.

The U.S. S&P 500 SPX is up 20% this year.

-Steve Goldstein

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10-04-24 0619ET

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