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

Ask AI · How do geopolitical risk factors affect Wall Street sentiment calibration?

Wall Street’s optimistic sentiment toward US stocks showed some loosening in March, but it has not yet reached the level that would trigger a contrarian buy signal.

According to the Pursuit Trading Desk, in a report published on April 1 by Bank of America stock and quant strategists Victoria Roloff and Savita Subramanian, the Sell Side Indicator (SSI) shows that, as geopolitical tensions push the S&P 500 down 5% over the month, the strategists’ average suggested stock allocation ratio edged down from 56.0% to 55.7%. Even though sentiment has cooled at the margin, the indicator is still currently closer to a “sell” signal than to a “buy” signal, and there is still a substantial distance from the contrarian buy trigger range.

This marks the first time in more than six months that the strategists’ average suggested stock allocation ratio has been cut, but the decline is only 30 basis points—about one-fifth of the decline after the tariff announcement shock in April last year—indicating that the sentiment adjustment is quite mild. The current SSI reading is just 1.9 percentage points away from the “sell” signal threshold, but 4.4 percentage points away from the “buy” signal threshold, and it still remains clearly below the level typically exceeding 59% during historical market peak periods.

On the fundamentals side, Bank of America keeps its S&P 500 year-end target price at 7100 points unchanged, implying about 9% upside from current levels, which is higher than the modest expectations at the start of the year. Meanwhile, Bank of America economists cut their forecast for 2026 US real GDP growth from 2.8% to 2.3%, but Bank of America believes that, provided the economic outlook does not deteriorate further in any material way, S&P 500 earnings per share are still poised to deliver healthy double-digit growth.

Sentiment has cooled but not to “capitulation”; the indicator remains biased toward the sell zone

The SSI is a contrarian sentiment indicator that tracks Wall Street sell-side strategists’ average suggested stock allocation ratio within balanced funds. The buy and sell signal thresholds for the indicator 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 a neutral-to-high region between the two.

Bank of America notes that the decline in March was the first reduction in six months, triggered by rising geopolitical risk that drove the S&P 500 to its worst single-month performance in nearly a year. However, the magnitude of this adjustment was far less than the major shocks the market experienced previously—after the tariff announcement was released in April last year, the indicator’s drop was about five times that of this time. This means that, despite clear volatility in the market, Wall Street strategists’ overall sentiment has not undergone a fundamental change.

From 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%; while 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%.

Oil prices rise drag on GDP forecasts, but the impact on S&P 500 earnings is limited

Even as market sentiment cools, Bank of America believes the fundamentals remain solid. The S&P 500’s 2026 earnings forecast was raised by 2% in March, lifting the market’s consensus year-over-year growth expectations to 17%. At the same time, the S&P 500 forward P/E multiple has fallen by about 15% from the recent high around late October last year, easing valuation pressure.

Bank of America keeps its forecast for S&P 500 earnings per share at $310, corresponding to a year-over-year growth rate of about 13%. The report points out that from the current level to the year-end target price of 7100 points, this implies about 9% upside in price return.

Bank of America economists cut their forecast for 2026 US real GDP growth from 2.8% to 2.3%, mainly because the macroeconomic drag from rising oil prices. However, Bank of America believes the impact of this macro headwind on overall S&P 500 earnings is relatively limited.

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

Wall Street has been underweight stocks for the long term

Historically, the SSI has been a reliable contrarian sentiment indicator. Notably, during the bull markets of the 1980s through the 1990s, as well as during the bull markets of 2009 through 2020, Wall Street strategists consistently recommended being underweight stocks. The 2008 global financial crisis pushed the indicator below the conventional balanced-fund stock allocation benchmark range of 60% to 65%, and in 2012 it touched 43.9%, the lowest point in history. Although the current reading of 55.7% has rebounded substantially from historical lows, it remains 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 persistent state of systematic underweight positioning toward stocks for the long term—this is the fundamental reason why the indicator works under a contrarian logic. When they truly begin to become extremely bullish, it often means that the upside has already been priced in to a sufficient extent. With the current reading of 55.7%, the indicator is still above the post-crisis average, but it remains a considerable distance away from the historically extreme bullish zone.