Weekly Street Sentiment: Easy Money Already Made?

Weekly Street Sentiment

• Overall market sentiment increases by 2.32%.
• Most bearish industry remains Consumer Cyclicals.
• Most bullish industry reverts back to Healthcare.
• Sell-side certainty remains negative.
• Most active area for idea generation remains Technology.
• Consumer Non-Cyclicals is now the industry with second most bearish sentiment.

WEEKLY COMMENTARY

Sentiment on the Street increases by more than 2% heading into market open Monday. Healthcare rebounds to once again become the industry with the most bullish sentiment while Consumer Cyclicals remain firmly entrenched as the industry generating the most bearish sentiment. The sell side continues to feel their way gently through this last month as the First Coverage Sell-Side Certainty Index [FCSSI] remains below 100 and indicates that much cash (and for that matter people with cash) continue to sort through recent data prior to making their final call on overall market direction.

LOOKING AHEAD

A modest uptick in Street Sentiment heading into this week, possibly because only 20,000 people lost their job last month according to the Bureau of Labor Statistics. Or, if seen through a more skeptical lens, possibly because our users weren’t any of the 20,000 that lost their job last month. Regardless of the cause of the uptick – and I’m reminded at this point of sound advice not to look a gift horse in the mouth – what’s interesting is that sell-side consensus continues to indicate that ‘easy money’ has already been made in industries such as Commodities and Basic Materials. Bulls are starting to allocate capital to industries which would benefit from the economic situation being not nearly as dire as those pessimists (or realists, only time will tell) continue to think.

Heading into Monday, the three industries with the most bullish sentiment (Transports, HealthCare and Capital Goods) have all held the top spot at some point in the last month. All three industries would be clear beneficiaries of a credit market that is neither as tight nor non-existent as others might suggest. However, before you run off to buy the first company that springs to mind as being heavily involved in all those indicated industries, I suggest you consider three other data points.

First, GE (GE) is already up over 5% since the middle of April.

Second, as bullish as some users continue to get on these industries, their enthusiasm is matched by the increasing bearishness of other sell-side professionals towards the consumer (is it possible for bears to be enthusiastic?). For the first time, it’s not just the consumer’s discretionary purchases which are being called into question. This week, Consumer Non-Cyclicals almost found itself in the unenviable position of being the industry with the most bearish sentiment around. First Coverage users are taking a sober second look at the consumer and deciding that Non-Cyclicals are really only non-cyclical if one actually has the cash needed to purchase these critical items (like food).

We all know about correlation at the extremes in finance and perhaps there’s something to be said for the theory that in real life, upon extreme events like foreclosures, bankruptcies etc., all consumer purchases end up having a correlation of 1. You either have the money or you don’t, regardless of how S&P classified the purchase.

Finally, a quick reminder that overarching all this information is the undeniable fact the sell-side remains quite certain that they are in fact still uncertain. As we discussed last week, the FCSSI turned negative and this week remained negative. In simple terms this means that the sell side as a whole continues to take money off the table by closing more positions than they are opening. Uncertainty plus divided opinions certainly make for interesting times, but they do not make for easy money.

PREVIOUS SENTIMENT INDICATED

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: S&P Healthcare index posts first three consecutive weeks of gains since June of 2007.

Until next week.....