Mastercard Leads Q3 Sentiment for Financial Services

The 3^rd calendar quarter ended last Wednesday September 30, 2009. As many people analyze the performance of securities for the quarter, I’d like to look at sentiment and change in sentiment for the financial services sector.

Sentiment is a measure of how people feel a stock will perform and is captured by a voting mechanism that indicates a strong buy, buy, neutral, sell, and strong sell. The value of sentiment is based on the ‘Wisdom of Crowds’ where the many will in most cases make better decisions than the individual. Higher sentiment stocks are considered higher quality stocks, while lower sentiment stocks are considered lower quality stocks.

Voting Mechanism for Capturing Sentiment

While overall sentiment is effective in defining the quality of a stock, change in sentiment provides a timing mechanism to understand underlying changes in a security potentially ahead of a price move. For example, a large increase in sentiment should be seen as positive even though the underlying stock has a low absolute sentiment.

For this analysis, we will use sentiment generated by the web application, Piqqem. Piqqem captures, processes, and displays sentiment results by allowing its users to vote on the price direction of a stock and then applies its own propriety factors to calculate sentiment for a security. In their model, 0 is the lowest and 4 is the highest sentiment.

Q3 Sentiment for Financial Services

The above chart shows Mastercard’s (MA) current sentiment leading the group as of 9/30/09 at 2.77 with Morgan Stanley’s (MS) sentiment at 2.22 and bringing up the rear. JP Morgan (JPM), Wells Fargo (WFC), Goldman Sachs (GS), and Bank of America (BAC) all came in with respectable sentiment results above 2.5. But how did sentiment change for this group?

Q3 Change in Sentiment – Wells Fargo & Bank of America are the Winners

Source: Piqqem

The change in Q3 sentiment for these seven securities shows a strong upward bias for Wells Fargo, Bank of America, Morgan Stanley, and Mastercard, a neutral bias for JP Morgan, and a slight downward bias for Goldman Sachs and Citi. Changes in sentiment can be an early warning system for the underlying security.

Sentiment for the S&P 500 was up over 40% for the past quarter, while this group gained on average 6% in sentiment.

We will publish updates on each of these securities shortly before their next earnings release.

Disclosures: No Positions

Comments

[Senan:]

Piqqem, had never heard of it, but it's another tool to add to the armoury!

Oct 06 01:15 PM

[BerkeleyBob:]

Wouldn't V belong in this cohort?

Oct 06 04:01 PM