Investor optimism has only grown despite a rough ending to December, indicating that selling actually may not be over yet. Bank of America said its stock market sentiment readings are flashing signs that the bullishness is overdone. In the past , the indicators have been consistent with near-term selling points as high levels of sentiment, or euphoria, can mean that stocks are overvalued and overbought. The firm’s “Sell Side Indicator” is just shy of triggering a sell signal. At 57%, the measure of typical Wall Street equity allocation in a balanced portfolio has risen for eight straight months and is at its highest since early 2022. “Sentiment improved despite cracks in the equity market, with the S & P 500 posting its worst month since April (-2.4%),” Savita Subramanian, the bank’s equity and quant strategist, said in a client note Thursday. “Our indicator remains in ‘Neutral’ territory but is just 1ppt shy of triggering a ‘Sell’ signal.” .SPX 3M mountain S & P 500 performance The current level, she added, “indicates that the 20%+ annual returns we’ve seen over the past two years are likely behind us,” though she noted that over the coming 12-month period, sentiment is still consistent with a 10% return on the large-cap index. In February 2021 , for instance, the indicator also was just 1 percentage point away from hitting the “sell” level and the market ended up rallying 27% over the next year. However, when the SSI triggers a sell signal, the average 12-month return is just 2.7%, with negative returns happening 38.9% of the time. There are other signs, though, that the market is overheated. BofA’s monthly fund manager survey for December showed that cash levels among professional investors fell to 3.9%, the lowest since June 2021. That also is a sell signal and has coincided in the past with “huge tops in risk assets,” wrote Michael Hartnett, the bank’s chief investment strategist. Since 2011, “sell” signals have seen average losses of 2.4% in the next month and 0.7% over the next three months for global stocks, Hartnett said. Yet that’s not a perfect indicator either, as the survey in February 2024 showed the highest allocation to stocks since November 2021, only to portend last year’s big equity surge. A broader level of sentiment that takes into account cash and equity allocations as well as the outlook for economic growth hit its highest since August 2021 after posting its biggest monthly gain since June 2020.