Can you buy the dip with the US stock market falling? Bank of America: Sentiment indicators are still far from a "buy" signal.

Wall Street’s optimistic sentiment toward U.S. equities loosened in March, but it has not yet reached the level needed to trigger a contrarian buy signal.

According to a report released on April 1 by Bank of America stock and quant strategists Victoria Roloff and Savita Subramanian of the Chase-the-Trend Trading Desk, the Sell Side Indicator (SSI) shows that as geopolitical tensions drove the S&P 500 to fall 5% over one month, the average recommended equity allocation ratio for Wall Street strategists slipped slightly from 56.0% to 55.7%. Although sentiment has eased at the margin, the indicator is still currently closer to a “sell” signal rather than a “buy” signal, and there is still a considerable distance from the contrarian buy trigger range.

This marks the first cut in the average recommended equity allocation ratio in more than six months, but the reduction is only 30 basis points—about one-fifth of the drop following the tariff announcement shock in April last year—indicating that the sentiment adjustment is fairly mild. The current SSI reading is only 1.9 percentage points away from the “sell” signal threshold, while it is 4.4 percentage points away from the “buy” signal threshold, and it also remains clearly below the level typically exceeding 59% during periods of historical market tops.

At the fundamentals level, Bank of America keeps its S&P 500 year-end target price at 7100 points unchanged, which implies roughly 9% potential price upside from current levels—higher than the modest expectations at the start of the year. At the same time, Bank of America economists lowered their forecast for 2026 U.S. real GDP growth from 2.8% to 2.3%, but Bank of America believes that as long as the economic outlook does not deteriorate further materially, S&P 500 earnings per share are still expected to achieve healthy double-digit growth.

Sentiment cools, but not to the point of “capitulation”; the indicator still leans toward the sell range

The SSI is a contrarian sentiment indicator that tracks the average recommended equity allocation ratio of Wall Street sell-side strategists in balanced funds. The indicator’s buy and sell signal thresholds are set based on one standard deviation above and below the rolling 15-year average. The current “sell” threshold is 57.6%, the “buy” threshold is 51.3%, and the latest March reading is 55.7%, placing it in the neutral-to-high region between the two.

Bank of America noted that the pullback in March was the first cut in six months, driven by warming geopolitical risk that led the S&P 500 to post its worst single-month performance in nearly a year. However, the magnitude of this adjustment is far less than the major shocks the market experienced earlier—after the tariff announcement was released in April last year, the indicator’s decline was about five times that of the current move. This means that although the market has shown clear volatility, Wall Street strategists’ overall sentiment has not undergone a fundamental change.

Looking at historical data, when the SSI is in the “buy” range, the S&P 500’s average return over the following 12 months is as high as 20.5%, with a median of 19.7%; when it is in the “sell” range, the average return is only 2.7% and there is a 38.9% probability of a negative return. The S&P 500 price return implied by the current indicator reading over the next 12 months is about 12.5%.

Rising oil prices weigh on the GDP forecast, but have limited impact on S&P 500 earnings

Despite the cooling in market sentiment, Bank of America believes fundamentals remain solid. The S&P 500’s 2026 earnings outlook was raised by 2% in March, lifting the market consensus’ year-over-year growth rate to 17%. Meanwhile, the forward P/E ratio for the S&P 500 has fallen by about 15% from the recent peak around late October last year, easing valuation pressure.

Bank of America maintains its forecast for S&P 500 earnings per share at $310, implying a year-over-year growth rate of roughly 13%. The report notes that from the current level to the year-end target price of 7100 points, this corresponds to about 9% of potential price return space.

Bank of America economists lowered their forecast for 2026 U.S. real GDP growth from 2.8% to 2.3%, mainly due to economic drag from higher oil prices. However, Bank of America believes this macro headwind poses relatively limited impact on the overall earnings of the S&P 500.

The report explains that energy costs account for a relatively small share of total operating costs across S&P 500 constituent companies, and rising oil prices mainly create pressure for specific industries rather than posing a systemic threat to the index’s overall earnings. Under the baseline scenario in which the economic outlook is not further materially downgraded, Bank of America believes S&P 500 earnings per share can still deliver healthy double-digit growth and keeps its full-year earnings forecast at $310.

Wall Street has been in an underweight-equities posture for the long term

The SSI has historically been a reliable contrarian sentiment indicator. Notably, Wall Street strategists consistently recommended underweight equities throughout the bull markets of the 1980s to 1990s and again during the bull markets of 2009 to 2020. The 2008 global financial crisis pushed the indicator below the traditional balanced-fund equity allocation benchmark range of 60% to 65%, and it hit a historical low of 43.9% in 2012. While the current 55.7% reading has rebounded significantly from the historical trough, it is still below the traditional benchmark range mentioned above, reflecting a structural shift in Wall Street’s overall allocation style after the financial crisis.

This indicates that, as a group, sell-side strategists have been in a long-term systematically underweight posture toward equities—this is the fundamental reason the indicator works under a contrarian logic. When they finally begin to turn extremely bullish, it often means that upside potential has already been priced in sufficiently. With the current reading of 55.7%, sentiment remains above the post-financial-crisis mean, but still far from the historical extreme bullish range.

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