BofA analyst said in a note Monday that bulls are "becoming an endangered species" with sentiment still bearish, but the analysts noted that this does not necessarily mean downside is ahead.
"Bearish sentiment argues for double-digit returns," the analysts wrote. "The Sell Side Indicator (SSI), our contrarian sentiment model, tracks U.S. sell-side strategists' average recommended allocation to stocks. Allocations were effectively unchanged in April (+4bp) at 52.7%, a six-year low."
They explained that the SSI is one of six inputs into the firm's year-end target and is the most bullish of these signals.
"Today's SSI indicates +16% price return over the next 12 months, putting the S&P 500 at 4600 by year-end. Historically, when the SSI has been as low or lower, 12m forward S&P 500 returns were positive 94% of the time (vs. 81% overall). Even if we factor in a distribution approach to control for higher returns from 1985 to now, this still yields a year-end forecast of 4500," said the analysts.
In addition, the analysts noted that while the indicator is currently in "Neutral" territory, it is only 1.3ppt shy of triggering a "Buy."
"The shift from equity love to bond love since last year is one reason we see upside risks to stocks vs. bonds. Investors are positioned for a '09-style recession," they added. "It's hard to find an unequivocally bullish investor today."