By Karen Langley
Investor sentiment appears to have risen in recent days -- and analysts say it is still flashing a buy signal.
The Bank of America Merrill Lynch Bull & Bear Indicator has jumped to a six-week high, according to a BofA Merrill Lynch Global Research report released Friday. The contrarian indicator rose to 1.9 from 1.3, remaining below the 2.0 threshold under which BofA Merrill Lynch recommends buying risk assets.
The indicator runs from 0, signifying maximum bearish sentiment, to 10, signifying maximum bullish sentiment. It is calculated using debt and equity fund flows, investor positioning and price action in equity and debt markets.
The shift in sentiment took place as investors cheered a "phase one" trade deal between the U.S. and China that prevented additional tariffs from taking effect and a preliminary Brexit deal between the U.K. and European Union.
Upbeat earnings reports from companies including JPMorgan Chase & Co., Coca-Cola Co., United Airlines Holdings Inc. and UnitedHealth Group Inc. also boosted sentiment. Of the 73 companies in the S&P 500 that reported earnings through Friday morning, more than four-fifths beat analysts' expectations, according to Refinitiv.
A survey of individual investors, meanwhile, showed a jump in optimism in the week ending Wednesday. The American Association of Individual Investors found that bullish sentiment, or expectations that stock prices will rise over the next six months, rose by 13.3 percentage points from the previous week to 33.6%.
Even so, the gauge of optimism is below its historical average of 38% for the 22nd time in 23 weeks, according to the AAII.
Bearish sentiment, or expectations that stock prices will fall, fell to 31.1%, a retreat of 12.9 percentage points -- but still above the historical average of 30.5%.
RBC Capital Markets said the four-week average sentiment gap suggests the S&P 500 is poised to rally over three months and 12 months. "This is something that keeps us in the neutral camp on equities rather than in the bearish camp," Lori Calvasina, head of U.S. Equity Strategy at RBC Capital Markets, wrote in a note.