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Weekly Street Sentiment

  • Overall market sentiment is unchanged.
  • Most bearish industry is Consumer Cyclicals unseating Financials.
  • Most bullish industry is Capital Goods.
  • Sell-side certainty declines for fourth week in a row and is now negative.
  • Most active area for idea generation is Technology.

WEEKLY COMMENTARY

A noticeable lack of clear direction in sell-side sentiment combined with a marked drop in the sell-side’s willingness to suggest new positions leads us to conclude that the only certainty amongst market participants these days is uncertainty. Overall market sentiment is unchanged week over week heading into Monday morning. The most bullish industry for the first time since we’ve been recording aggregate statistics is Capital Goods while Consumer Cyclicals recaptures the title of ‘industry with the most bearish sentiment’.

LOOKING AHEAD

Oil’s at a record high, the consumer’s confidence is at a record low, Sell-Side Certainty has turned negative for the first time in over a month and the economy is in the tank, or…as one astute heckler noted at a recent political gathering…the gas tank.

For those of you new to this weekly summary, Sell-Side Certainty is calculated by dividing the number of times institutional sell-side professionals suggest that clients open new positions by the number of times they suggest that open positions be closed. This is the record fourth week in a row the Sell-Side Certainty index has declined and it now rests below 100 for the first time in months. (If you’re interested in seeing a graph of sell-side certainty let us know by emailing us at info@firstcoverage.com)

The logical question one might ask their fearless sell-side coverage is "why so uncertain?" Some might suggest that any time a strike in Scotland impacts the price of oil, it’s time to pack it in and take a break for a while. Others might suggest the New York State Department of Labor is to blame with their prediction that almost 20% of our own brethren (financial service employees) are likely to lose their jobs over the next 24 months. This ensures that one out of every five people in our industry is pre-occupied with other more pressing and personal concerns, (you know who you are). However, in truth, market participants might even be acting…wait for it….rationally in deciding to gather more information.

Halfway through earnings season with little in the way of surprises and a recent 4% run up in the markets, it seems that the sell side actually believes that the stock market is right now in that ‘just right’ position where the risks to the upside are matched by the risks to the downside. However, by the end of the upcoming week over three quarters of the S&P 500 will have announced their quarterly results (125 this week alone) and according to those who make their living providing estimates – of which, I remind you, almost 80% will still be employed 24 months from now – earnings overall are still expected to fall 14.1% from a year ago. The Fed will be meeting Tuesday and Wednesday this week and most are expecting them to once again cut rates.

Finally, the Street will get its first look at Q1 GDP, construction spending, auto sales, personal income numbers and, at the end the week, an April jobs report. All this data in such a short time frame has led many to decide to wait a few more days before suggesting where new capital is to be allocated. Rational people acting rationally in a rational market…now you’ve seen it all.

All that being said however, the sell-side does have enough confidence to put one stake in the ground (if not the consumer`s heart). Record lack of consumer confidence is enough to convince the sell side that we will all reduce our spending on discretionary items.

"Historically, the most accurate real-time signal of recession has been consumer confidence," says Ryan Sweet of Moody's Economy.com last week. "This level of confidence is not only consistent with a recession; it is beginning to suggest a severe recession."

Ouch. Clearly, when rebate checks start showing up in people’s mailboxes this week, the sell side seems certain it is unlikely to do much more than remind everybody how poor they are. With many consumer companies in the 125 announcing earnings this week, we’ll get some fairly quick clarity about whether they are right or wrong.

We’re almost out of room, but a quick note about Capital Goods now being the most bullish sector in town. Capital Goods do well when the economy is expanding. If this is the start of a trend that sees sustained bullish sentiment behind these stocks, then there is clearly a new group of believers percolating amongst the sell side that the future of the economy isn’t nearly as bad as the consumer thinks.

PREVIOUS SENTIMENT INDICATED

On April 14th: Energy came racing back to reclaim the title of ‘most bullish’. Not only is it back, but it’s back at record levels of positive sentiment.

What’s happened since: Oil continues to hit record levels and peaked at nearly $120 this week.

On April 21st: Two weeks ago we mentioned that Healthcare was gaining in bullish sentiment. Since that date, it’d be safe to say that it took the express elevator to the top.

What’s happened since: Healthcare strings together the sector`s first back-to-back positive weeks since December of 2007.

Until next week…

Source: Weekly Street Sentiment: Only Certainty is Uncertainty