WEEKLY STREET SENTIMENT
- Overall market sentiment decreases by 3.59%.
- Most bearish industry remains Financials.
- Most bullish industry is Consumer/Non-Cyclical, replacing Basic Materials.
- Sell-side certainty remains positive but declines to 104%.
- Most active area for idea generation is Technology.
Sentiment on the Street decreases by over 3.59% heading into market open Monday. Consumer/Non-Cyclical becomes the industry with the most bullish sentiment while Financials remains the industry generating the most bearish sentiment. The First Coverage Sell-Side Certainty Index [FCSCI] remains above 100 but shows a decline over the last two weeks.
Stop me if you’ve heard this one before: Financial firm gets into trouble, markets get concerned, financial-related equities get slaughtered and Fed comes to the rescue. I know…we’ve seen that play, bought the tickets, ate the snacks and called it a night, right? Right?? Well, not so fast!
Credit Default Swaps ring a bell? They also go by the name CDS or, for the less acronym-inclined amongst us, ‘those insurance thingies’. Regardless what you want to call them, firms use these securities to protect themselves against counter-parties unable to satisfy obligations… like, maybe, Bear Stearns. The cost of these swaps started going up well before the rest of us figured out what was really going on in mid-March and for the record, they’re rising again. That isn’t good news for anyone.
While the prices of CDS securities are still well-off record highs, current CDS prices combined with fears that the Fed might be low on ‘Save the World’ money are two of the reasons that Financials remain ‘off the menu’ when it comes to industries the sell side is suggesting buy-side clients allocate new capital.
In short, the more things change, the more Financials continue to stay the same. Four weeks ago, Financials regained their bottom-dwelling spot amongst our user base and since that time they have given up over 1,000 basis points relative to the S&P 500 benchmark.
On the flip side of reality... All Hail the Consumer!
The consumer, in an impeccable portrayal of one of those zombies who just doesn’t know better, refuses to stay ‘dead’. Even as consumer sentiment reaches multi-decade lows, even as sales at Sears drop 10% in Q1 against last year’s numbers, and even as sales at K-Mart declined over 7%, Consumer/Non-Cyclicals emerged this week as the industry with the most bullish sentiment.
Now, I bet you wish I had words of wisdom to make some sense of this renewed enthusiasm for the consumer... Well, lucky for you, I do. Even luckier? They aren’t only my words. This week’s Barron's includes parts of a report written by a JP Morgan Wall Street strategist which states, “Consumers are a lagging indicator, by the time the negative shock has rippled to affect households, financial markets have already discounted this.”
Apparently undeterred about insulting, well, everyone by referring to them as ‘lagging’, the author goes on to say that when all confidence is lost in the ability of the consumer to spend, historically consumers actually do a fantastic job of just that… spending. So, chin up, apparently we have the consumer just where we want them!
As an aside, I should also remind our readers that 2 weeks ago we discussed the first rumblings of a positive turn in sentiment towards the consumer amongst our user base. Since that occurred, Consumer Discretionary stocks have outperformed the S&P 500 by almost 200 basis points.
The data is clear in its lack of clarity. We have a division amongst the institutional sell-side users, and isn’t that what makes a market in the first place? Over 1,000 professionals evenly split between those who feel we are in the midst of an economy that’s coming out of the worst of it and those who feel we have a financial market that’s about to pull us deep into the worst of it.
One last thing to add to the confusion: The First Coverage Certainty Index continues to decline, sending signals that this is one debate which has both sides concerned there might still be some significant surprises left to come.
Until next week…
PREVIOUS SENTIMENT INDICATED
On May 19th: Energy saw a significant decline in bullish sentiment. What’s happened since: S&P 500 Energy Sector has slipped over 3% and Crude has fallen significantly from $135 highs.
On May 12th: Financials reclaim the spot of most bearish industry. What’s happened since: Over the last 3 weeks, Financials significantly underperform the S&P 500.