Do consensus bearish sell-side forecasts lead to down markets? This may not surprise you ;-)

From a BAML report, their Sell Side Indicator is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month, they have found that when Wall Street strategists are bearish, markets tend to go the other way. In fact, with BAMLs indicator at the most bearish level in three years, they point out that when it was at these levels or lower, the forward 12 month total return for the S&P500 was positive 100% of the time for an average 12 month return of 27%!

This study supports The Barometer Team view that investors and analysts can’t currently see the forest for the trees. Flows continue into bonds at the lowest yields in history and flows continue out of equities while the yields available in stocks offer the biggest yield premium to bonds in 20 years. This is all ocurring at a time when earnings revisions for US stocks over the last month have seen the biggest lift in five years.

With markets having consolidated the gains made between February and June, Barometer believes markets are set to move against the grain leaving many portfolio managers and investors woefully under-invested.

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Flows into or out of Equities

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