"Bank of America's "Bull & Bear Indicator" rose from 7.9 to 8.5 in the last few days, triggering its contrarian "sell" signal for risk assets, according to a note from analyst Michael Hartnett and his colleagues seen by Fortune this morning. The indicator is derived from BofA's regular fund manager survey, which asks 200-plus investment managers about their appetite for risk. The logic of the Bull & Bear Indicator is that when everyone in the market is bullish, it's time to leave."
"On average, the MSCI All Country World Index (an index that represents stocks globally) declined by 2.4% afterwards, the bank says, with a maximum average drawdown of 8.5% by three months later. The indicator has a record of being right 63% of the time-so it isn't flawless. But BofA also notes that investors are in an unusually "risk-on" mood in equities right now:"
Bank of America's Bull & Bear Indicator rose from 7.9 to 8.5, activating a contrarian sell signal for risk assets. The indicator is based on a fund manager survey of over 200 investment managers that gauges appetite for risk. The sell signal has been triggered 16 times since 2002; on average the MSCI All Country World Index fell 2.4% afterward, with a maximum average drawdown of 8.5% by three months. The indicator has been correct about 63% of the time. Recent flows show extreme risk-on behavior, including $145 billion into equity ETFs and $77.9 billion into U.S. stocks in a single week. Investor sentiment now diverges from Purchasing Managers Index readings, with investors more optimistic about the future than corporate buyers.
Read at Fortune
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