September has historically been the worst month for the SPDR S&P 500 ETF Trust (NYSE:SPY), but Bank of America analyst Savita Subramanian said Wednesday his Sell Side Indicator is suggesting the market may soon face something a bit more bearish than typical seasonal weakness.
Contrarian Indicator: The SSI tracks the average recommended equity allocation by sell-side strategists. Subramanian said the indicator is now just 0.53% away from dropping below its Sell indicator.
Its current position is the closest it’s been to the Sell indicator since May 2007. In that last instance, the S&P 500 total return over the 12 months that followed was negative 7%.
“We have found Wall Street’s bullishness on stocks to be a reliable contrarian indicator, far more predictive than many other vaunted market timing models,” Subramanian said.
Weak Returns Ahead? At its current level, Subramanian said the SSI is suggesting 12-month S&P 500 returns of just 6% based on historical data. When it has dropped into Sell territory in the past, the S&P 500 has averaged only a 2.7% return over the following 12 months.
The S&P 500 is currently on a seven-month winning streak, which has historically been a bullish predictor for returns over the next six months. In fact, after seven straight months of gains, the S&P 500 has generated a positive return over the next six months 13 out of 14 times and averaged an impressive 7.8% return during those six months, according to LPL Financial.
Benzinga’s Take: Bullish analyst sentiment has historically been a reliable bearish contrarian indicator for the S&P 500, but it doesn’t mean investors should dump their stock holdings or go short the stock market. Even if Bank of America’s Sell indicator is triggered, the market has averaged a 2.7% annual return once the indicator is triggered, which is much better than the interest rates you’d get on a CD or high-interest savings account these days.