(September 5 – 17:15 ET) – If you believe in market timing it’s time to sell, says Merrill Lynch chief quantitative strategist, Richard Bernstein.
Bernstein says the firm’s proprietary Sell Side Indicator is at 61.6%, up from last month’s 60.8% and its second highest reading ever, only October 1993 was higher.
Merrill has been calculating the SSI for 15 years, noting that it “has historically been our most reliable quantitative market-timing barometer”. The SSI is a market consensus sentiment model.
Sell signals are indicated by anything at or above 57.7%, while buy signals are indicated by anything at or below 50.5%. Wall Street’s optimism is at its second-highest level in the period that the SSI has been calculated, and therefore it is time to sell. Back in October 1993, the SSI reached 61.8%, and the S&P 500 returned a 3.9% total return during the following 12 months. For 1994 as a whole, the S&P 500’s total return was just 1.3%.
Bernstein notes that the risk premium for equities is historically low, indicating that investors are not being well compensated for the risks associated with equities. Merrill’s 12-month expected return remains unchanged at single digits, up or down. “It has historically not been a particularly good time to be aggressive when Wall Street was euphoric,” Merrill says.”We see no reason to alter our conservative quantitative asset allocation.”
-IE Staff