Weekly Street Sentiment: It’s Hard to Keep a Good Industry Down

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Includes: DIA, IYT, OIL, QQQ, SPY, VDE, XLF, XRT
by: First Coverage

Weekly Street Sentiment

  • Overall market sentiment improves by 6.21% .
  • Most bearish industry remains Consumer Cyclicals for second week in a row.
  • Most bullish industry reverts back to Energy, unseating Transportation.
  • Sell-Side certainty remains positive but declines for second week in a row.
  • Most active area for idea generation remains Services.
  • Financials get more bullish for second consecutive week.

Weekly Commentary

Overall market sentiment increases more than 6% heading into Monday morning even as the S&P 500 declined almost 3% over the preceding week.

As a group, the sell-side is proving quite adept at providing valuable insight into short-term market directions. In every week since we’ve started tracking aggregate sentiment, movement of sell-side sentiment has correctly predicted the movement of the broader market over the following week. If that stays true, this upcoming week should be a strong one for the broader markets, counter-intuitive to what the rest of the media is discussing, but we’ll continue to go with the numbers.

Energy re-emerged as the most bullish industry on Wall Street while at the same time the consumer continues to be regarded by the street as troubled, tight-fisted and in extreme cases (and for alliteration’s sake) tortured.

Looking Ahead

It’s hard to keep a good industry down.

Just as it seemed inevitable that Transports were to be crowned the new undefeated, undeniable, unthinkable king of industries for the third consecutive week, Energy came racing back (presumably in some kind of gas guzzling snazzy automobile) to reclaim the title of ‘most bullish’. Not only is it back, but it’s back at record levels of positive sentiment.

Some might scoff that it’s easy for sell-side professionals to go back to the old standby that’s been so good to them in the recent past. After all, nobody’s gotten poor betting Oil would rise over the last couple years (although the actual rise itself continues to make many, many of us poor). However, don’t be too quick to overlook the courage of being bullish on Energy right now. The International Energy Agency recently cut demand growth forecasts by 460,000 barrels a day, the biggest downward revision in seven years.

It was also reported in Barron’s this week that the volume of shares betting the price of Oil will decline is ten times the volume of shares betting the price of oil rises. While we can’t tell yet if the Energy bulls on First Coverage are right or wrong in taking a stance that there’s room to move to the upside, we can immediately state that they are definitely zigging while many others in the market seem to be zagging.

As for the industry with the most bearish sentiment, Consumer Cyclicals has managed to hang on…which is more than some think the consumer will be able to do over the coming months. We all now know that consumer sentiment dropped to its lowest level in over 25 years. That might seem bad enough, but to put how today’s consumer actually feels about the economy in perspective there have only been 12 readings over the last 600 months (50 years) that were worse than Friday’s numbers. This Fed can’t be helping individuals regain confidence when words like ‘severe and prolonged economic downturn’ are being freely thrown about in recently released minutes. Clearly the aggregate data within First Coverage is saying that a consumer who lacks confidence in a better tomorrow is unlikely to spend their hard earned (or for the fortunate few, easily earned) money today.

Finally, speaking of money, Financials put together back-to-back weeks of improving sentiment for the first time since we’ve been publishing aggregated data. While it’s still too early to call this anything but interesting, we’ll go back to last week’s statement that once is a blip, twice is a pattern but three weeks in a row would be a trend. We’ll keep watching next week to see if the Street has decided that now is the time to start allocating to Financials.

Previous Sentiment Indicated

On April 7th:

Big news of the week is that Consumer Cyclicals unseated Financials as the industry with the most bearish sentiment.

What’s happened since:

Consumer sentiment falls to lowest level in over 25 years.

On April 7th:

Overall market sentiment declines 2.72% during the last week.

What’s happened since:

The broader markets, in the week following First Coverage’s Weekly Sentiment decline, declined themselves by almost 3%.

Until next week…