Investor optimism is rising despite a challenging December, indicating potential ongoing selling. Bank of America reports that its stock market sentiment readings suggest bullishness may be overstated, nearing a “Sell” signal. The equity allocation measure has increased for eight months, reflecting heightened optimism. Although sentiment improved amid market weaknesses, historical data indicates that high sentiment levels can signal overvaluation. Currently, anticipated returns may decrease compared to the past two years. The monthly fund manager survey shows reduced cash levels, traditionally correlating with market peaks. Overall, while sentiment is strong, caution is advised as past indicators suggest potential downturns ahead.
