As the S&P 500 records its longest six-month winning streak since 2021, discussions about "irrational exuberance" have resurfaced.

However, according to a latest report released by BofA Merrill Lynch on November 2, a key Wall Street sentiment indicator—the Sell Side Indicator (SSI)—remains far from reaching the extreme "bubble" level that would trigger a "sell" signal.

The SSI is a contrarian sentiment signal, meaning that when Wall Street strategists are overly pessimistic, it often signals a market rally, and vice versa. Data shows the indicator edged up slightly from 55.5% to 55.7% in October.

The report notes that the current reading of 55.7% remains in the "neutral" zone. While it is well above the threshold for a "buy" signal (51.3%), it still falls 2.1 percentage points short of the "sell" threshold (57.8%).

More importantly, BofA emphasizes that historically, market peaks have typically coincided with SSI readings above 59%. This suggests that despite dwindling bearish sentiment, market enthusiasm has not yet reached irrational levels.

**SSI Suggests 13% Upside Potential Over Next Year** The SSI is not just a sentiment gauge but also a predictive tool. BofA’s analysis shows that the indicator’s ability to forecast the S&P 500’s 12-month returns (R² of 25%) significantly outperforms other single-factor models like price-to-earnings ratios or dividend yields.

Based on its historical data model, the report clearly states that the current SSI level of 55.7% implies a healthy 13% price return for the S&P 500 over the next 12 months. However, this forecast is just one of five factors BofA considers when setting its S&P 500 price target.

Historical performance of the indicator highlights its contrarian predictive power:

- When the SSI was in the "buy" zone, the S&P 500 delivered an average 12-month total return of 20.5%. - When in the "sell" zone, the subsequent 12-month return plummeted to just 2.7%. - The current "neutral" reading suggests the market is neither extremely undervalued nor overvalued.

**Strong Fundamentals, But Market Has Priced in Optimism** The report also examines market fundamentals. Among companies that have reported earnings, 63% beat both earnings per share (EPS) and revenue expectations—the highest proportion since 2021, reflecting robust corporate performance.

However, the market’s reaction tells a different story. Data reveals that companies beating on both metrics saw their stocks outperform by just 0.9 percentage points the following day, below the historical average of 1.4 percentage points. Meanwhile, companies missing expectations were severely punished, underperforming by an average of 7.2 percentage points—nearly triple the usual decline.

This phenomenon strongly suggests that much of the "good news" had already been priced in before earnings season began. With high investor expectations, any disappointment risks triggering sharp sell-offs.

The report concludes by cautioning that while liquidity remains abundant, investors should remain vigilant to any reversal in liquidity conditions—especially if a Fed rate-cut cycle coincides with credit tightening, which historically marks the worst phase for equities.