LONDON: Bank of America Merrill-Lynch's indicator of market sentiment hit a "sell" signal pointing to a downturn for risk assets, the bank's strategists said on Friday.The bank's "Bull & Bear" indicator of market sentiment jumped from 7.9 to 8.6 on Jan 30, driven up by record inflows to equities and strong hedge fund risk appetite.The indicator has accurately predicted 11 out of 11 corrections since 2002, BAML strategists said.The average peak-to-trough decline in equities was 12 per cent after the signal was triggered, while 10-year US Treasury yields fell 58 basis points on average after the trigger, they said.BAML strategists forecast a decline of the S&P 500 to 2,686 points by the end of the first quarter. They hedged their bets, however, also making the case for the S&P 500 to shrug off the "sell" trigger and rise above 3,000.Sentiment signals could be less relevant, they conceded, in a world in which equities have surged higher partly thanks to central banks' extraordinary post-crisis injections of liquidity into global markets "A speculative equity overshoot has begun, driven by a central bank liquidity supernova and rotation out of $10.8 trillion of negative yielding global debt, suggesting we have entered a 2 standard deviation world making sentiment signals less relevant," BAML wrote.The bank's clients in Asia were sanguine about a potential pullback. "Too early for a tradable correction... pullback 2-3 per cent max which will be bought... macro & investment backdrop too perfect to sell," BAML quoted clients as saying.

Source: Economic Times February 02, 2018 14:37 UTC