At the macro level, the story is consistent.
If you read last week’s update then you know this week’s theme; the sell-side is feeling bullish and the majority are continuing to tell their client base of institutional portfolio managers to stay long this market. While this continued optimism stands in contrast to a surprising drop in consumer confidence last week, it remains consistent with the tone of a market that rallied an additional 2% during the same period of time.
Continued optimism shouldn’t be a surprise to anyone that’s been following First Coverage sentiment this year. Outside of the confidence number mentioned above, both economic and corporate data were scarce last week. Subsequently, without any real obstacles to barrel through, a rally in motion will, once again, stay in motion.
Six of One, Half Dozen of Another
That being said, the week upcoming is different and is one full of new data on retail sales, housing and inflation. And while some might expect that ahead of this batch of news a more “cautious” stance would be taken by the sell-side, one would be only partially correct.
Certainty of the sell-side can be shown by looking at the number of new ideas being opened compared to the amount of old ideas being closed, and this ratio is negative for the second week in a row. Underlying this data, there is a small but growing percentage of the sell-side that is calling it a day. While they are not getting bearish, this small but vocal minority is definitely suggesting clients lock in some profits.
However, on the other side, there is a much larger percentage of the sell-side that continue to contribute to an upwards creep in the market sentiment level. It appears as if those that have decided to still suggest new capital allocations have also decided that nothing on the horizon could constitute a meaningful enough surprise to derail a perfectly enjoyable year-end rally.
Risk is no Longer a Four Letter Word
And that means that amongst those still doling out advice; a healthy risk appetite is back.
Not only is the sell-side being bolder in the face of many important data points, but once again the sell-side is suggesting that the buy-side live life on the edge for these last six weeks of 2009 and purchase financial stocks.
Sentiment surrounding the financial industry has seen strong bullish movement for the past two weeks and is now, once again, the most bullish industry as measured by sentiment amongst the sell-side. We’ve often talked about the fact that it would be unlikely to see a sustained break in the rally until the industries that brought us this far, technology and financials, were abandoned. To date, we are clearly seeing nothing that would be consistent with that type of break occurring in this massive run that’s been ongoing since the beginning of March.
Stocks to Watch
Over the last week, the following stocks had the largest bullish and bearish sentiment shifts amongst the sell-side.