Bank of America said in a Thursday note that investors should not shy away from purchasing U.S. equities when markets are at record levels, pointing out that “over the past fifty years, S&P 500 returns showed no penalty versus buying on any other occasion, and five years later there was on average a meaningful boost.”
In its latest RIC Outlook, the bank reminded investors that although “buying equities at all-time highs may feel like a mistake,” historical data suggests the opposite.
It also noted that this year, “investors have been rewarded by ignoring weak ‘soft’ survey data in favor of resilient hard data.”
“The best reason to stay bullish into year-end is that so many consumers, lenders, and companies are bearish,” BofA said. The firm emphasized the persistent gap between sentiment and actual economic activity, which it believes supports staying invested in equities despite widespread caution.
The bank pointed out that in September, ‘soft data’ indicators of investor and economic confidence softened slightly, reflecting weaker ISM new orders and lower The Conference Board consumer confidence.
Those sentiment readings “lowered the series to 0.5 standard deviations below average,” while “‘hard data’ measures of economic and financial market activity held steady, around 0.3sd above average.”
Looking beyond stocks, BofA noted that U.S. households currently hold the highest cash levels since 1991 and that “existing home sales are at dour GFC levels.”
It attributed both trends to elevated interest rates and pointed to the mid-1980s as precedent, when “rate cuts made mortgages friendly and the cash rotation made equity prices double.”
BofA’s base case for the end of Q4 sees a “4% 10-year Treasury and 3.9% Fed rate.”
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