WEEKLY STREET SENTIMENT (Monday, June 9th)
- Overall market sentiment remains relatively unchanged week over week.
- Most bearish industry remains Financials.
- Most bullish industry remains Consumer / Non-Cyclical.
- Sell-side certainty remains positive and almost unchanged at 105%.
- Most active area for idea generation is Energy replacing Technology.
WEEKLY COMMENTARY (Monday, June 9th)
Sentiment on the Street was unchanged week over week heading into market open Monday. Consumer/Non-Cyclical remained the industry with the most bullish sentiment while Financials remained the industry generating the most bearish sentiment. The First Coverage Sell-Side Certainty Index [FCSCI] remains slightly above 100 and is also relatively unchanged from last week.
For the first week since we’ve started tracking sentiment numbers, there was no change in any of the big three. Financials remained the most bearish – in fact, they have now held this spot so consistently that we’re thinking of renaming this category, the most ‘Financialish’. Consumer Non-Cyclicals remained the most bullish and the overall market sentiment levels remained fairly flat after last week’s significant drop in bullish sentiment.
We believe that those who are unable to learn from history are bound to repeat it, so let’s take a quick look at what happened last week when these numbers lined up in exactly the same manner.
Last week, the Dow Jones plummeted 3.4%, the Financials underperformed the Dow by over 100 basis points and the Consumer Services outperformed the Dow by over 100 basis points. According to our users, this week looks like more of the same and they’re the ones who keep getting it right.
So, how does the Consumer merit being first in sentiment for the second week in a row? Results from Wal-Mart, Costco and other discount retailers demonstrate that the consumer does remain alive but also happens to be a whole lot more cost-conscious.
"With economic stimulus checks hitting mailboxes in May, many consumers felt a bit of relief and were more comfortable spending on necessities than they have been in the past few months," said Ellen Davis, senior director of the National Retail Federation in Washington. Davis went on to say "Warehouse clubs and discount retailers are benefiting greatly because people are using checks to stock up on baby formula (and) laundry detergent, and filling up their car… instead of buying furniture or TVs, people are using the rebate checks to make more practical purchases at this point."
While the sell-side agrees in principle that the consumer will continue to make the purchases they need, necessity, much like beauty, is all in the eye of the beholder. In fact, Wal-Mart experienced a rise in sales of DVDs, video games and pet supplies, while clothing sales fell. This creates a very disturbing, although probably fairly accurate mental image of a cash-strapped consumer cocooning at home with his trusty pet while playing videogames in their underwear. Welcome to the future of the consumer!
There’s a saying that “Reality is the leading cause of stress amongst those in touch with it,” and during the last week it really does seem that more and more people are getting in touch with reality.
For example… reality meet Financials!
Financials remain firmly ensconced as the industry with the most bearish sentiment for what seems like the 587th week in a row, but is probably more accurately the 5th week in a row. New data continues to demonstrate that holdings amongst the Financials are not as pristine as some have publically assumed or privately hoped.
The FDIC keeps warning of growing problems with the banking industry, and it’s no wonder as the banks are stuck with unknowable amounts of what will most certainly turn into underperforming loans in housing and construction.
To further the bearish case for Financials, On June 5th, it was announced by the Mortgage Bankers Association that 8.8 percent of all home loans in America were past due or in foreclosure, or about 4.8 million loans. Foreclosures are now at record levels while the notion of ‘losing your home’ has clearly begun to leak from the subprime to the prime.
Clearly situations like this don’t go away overnight. However, Richmond Federal Reserve Bank President Jeffrey Lacker, a man, according to First Coverage, fully in touch with reality, recently expressed his opinion that the Fed’s policies related to rescuing securities firms are, to be polite, incorrect.
Lacker was quoted last week as stating, “the danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking that in turn could give rise to more frequent crises.” Lacker, to what we can only assume was the terror of CEO’s of financial firms everywhere, is urging the Fed to set clear boundaries on its help to the financial markets, and that the limits “aren’t going to be credible unless we let somebody fail in a costly way that is beyond that scope.”
Like we said, reality meet Financials… It’s apparent that sell-side professionals think you two have a lot to discuss.
Finally, we digress this week with a brief comment on ‘accountability’. We are very proud of our efforts and progress at First Coverage to bring a more accountable process to the way information is transmitted on Wall Street. However, even we can take a moment to commend those who are also trying to bring a greater sense of accountability to their own industries.
Bob Gates, Secretary of Defense recently terminated two Air Force personnel including Air Force Chief of Staff Gen. Michael Moseley. If you are unaware of the reason, it appears that on Mr. Moseley’s watch, the Air Force accidently delivered fuses for ballistic missile warheads to Taiwan instead of the helicopter batteries they had ordered. Oops.
Secretary Gates commented about the situation, and I think would find most people in agreement that, “Mistakes are not acceptable when shipping and controlling sensitive, classified parts of the United States’ nuclear arsenal.” Gates also commented that he was looking to create a greater sense of ‘accountability’ in the organization going forward.
We here at First Coverage nod our heads enthusiastically in agreement with the thought that greater accountability today is needed in a lot of places, but Secretary Gates, we can hardly think of any more pressing than that which involves keeping track of nuclear warheads. We wish you the best of luck in your efforts.
Until next week…
PREVIOUS SENTIMENT INDICATED…
On June 2nd : Financials claim their 4th week in a row as the most bearish industry.
What’s happened since: SInce May 5th, the S&P Financials Index has lost over 11%
On June 2nd : Overall market sentiment turns dramatically bearish.
What’s happened since: Over the last week, the Dow lost almost 3.5%.