Weekly Street Sentiment: Something Old, Something Blue

by: First Coverage

Weekly Street Sentiment

  • Overall market sentiment increases by 3.26%.
  • Most bearish industry remains Financials.
  • Most bullish industry is Basic Materials replacing Energy.
  • Sell-side certainty remains positive.
  • Most active area for idea generation is Capital Goods.

WEEKLY COMMENTARY

Sentiment on the Street increases by over 3.25% heading into market open Monday. Capital Goods become the industry with the most bullish sentiment while Financials remain the industry generating the most bearish sentiment. The First Coverage Sell-Side Certainty Index [FCSCI] remains above 100 as the Street continues to allocate new capital on both sides of the market with strong conviction.

LOOKING AHEAD

“Something old, something new, something borrowed something blue” is a traditional saying usually meant for a blushing bride preparing for her wedding. However this week it seems more apt to describe last week’s activity on Wall Street.

Something old: Financials remain the industry with the most bearish sentiment.

Not only does the sell-side continue to allocate capital anywhere but financials, but our data indicates record levels of bearishness. Knowing how ‘misery loves company’, let me introduce you to the C.E.O. of a major private equity firm. Last week, said C.E.O. was reported in the NY Post to have stated the following when discussing how his firm failed to buy a mortgage lender during the recent credit crisis, “Trying to buy a mortgage bank in the midst of the subprime crisis was the equivalent of being a noodle salesman in Nagasaki when the atomic bomb went off. Not a lot of noodles left or even a person – and that’s what happened to us on this deal.” (I said I’d find you company…I never promised that the company wouldn’t make you want to avert eye contact.) So, to sum up...we now have an industry that won’t finance itself to buy other companies within its own industry. It appears that the Financial industry has become similar to that old picture of a snake that starts eating its tail. While I never could figure out how that situation resolved itself, I can only assume it doesn’t end well for anyone involved…particularly the snake.

Something new: Capital Goods surges to become most Bullish Industry.

Capital Goods replace Energy (which saw a significant decline in sentiment) as a surprise choice by the sell-side as the most bullish industry in the market. It is also immediately noteworthy for recording the most bullish sentiment level ever associated with any industry since we’ve been tracking statistics. Deere’s recent guidance has either cleared the decks (or, perhaps more appropriately, mowed the lawn) for the entire industry and people are comfortable allocating capital based on reset lowered expectations, or those who feel we are past the worst for the broader economy are looking towards cyclicals for the inevitable bounce.

Something borrowed: Kudos to Wall Street…where now, ‘straight talk’ will be the norm…even if it’s mandated in 20% chunks.

If imitation is truly the sincerest form of flattery…then consider us at First Coverage flattered. It was widely reported this week that a bulge bracket research department will implement a new ranking system of stocks. The goal is to more accurately reflect & communicate market information and to this end, at least 20% of research going forward at this firm must be bearish.

If you can allow us to gloat momentarily (and if you can’t please skip this paragraph…), First Coverage users have enjoyed over 18 months of ‘straight talk’ with no mandates needed. As a result, more ideas sent through our platform to the buy-side in aggregate are bearish than anywhere on Wall Street. Periods like Q4, 2007 when 53% of all ideas regarding Financials on First Coverage were bearish vs. 10% of all research produced by Wall Street happen because information put on First Coverage is transparent, demands accountability and therefore contributors only send the data they honestly believe the buy-side can use to generate the greatest profits. No mandates needed and nearly 100,000 ideas served so far….now back to our regularly scheduled programming.

Finally, something blue…or in this case the consumer.

Joe consumer is the bluest they have been in 28 years as consumer sentiment hits the lowest numbers since before some of our users were even born. So, just when you’d expect that to be enough to shatter faith…our data shows just the opposite. Over the past week, Consumer Discretionary saw a large increase in bullish sentiment. With Target, Home Depot, Staples and others announcing earnings this week we’ll be able to quickly see if being long the consumer for the first time in ages works out in the short term. Regardless of this week’s outcome, the bigger question will remain…is this the start of a larger trend where some believe there finally is a light (and not an oncoming train) at the end of the tunnel for the consumer?

PREVIOUS SENTIMENT INDICATED

On May 12th: Bulls returned en masse to what’s worked before as Energy hits near record levels of positive sentiment.

What’s happened since: Energy hits record levels and leads the market forward over the last week.

Until two weeks from now (have a great long weekend!)…