Weekly Street Sentiment: What a Difference a Year Makes

by: First Coverage


  • Overall market sentiment declines by 1.5%.
  •  Most bearish industry remains Financials.
  • Energy replaces Consumer/Non-Cyclical as most bullish.
  •  Sell-side certainty declines below par to 97%.
  •  Most active area for idea generation is Basic Materials.


First Coverage Overall Market Sentiment declined by 1.5% week-over-week heading into market open Monday.  Energy re-emerged as the industry with the most bullish sentiment while Financials remained the most bearish for the sixth week in a row. The First Coverage Sell-Side Certainty Index [FCSCI] turned negative for the first time in months and declined to 97%.


Wow, what a difference a year makes…

Quick, a short 2-question pop-quiz for you – ready?

Question 1: Does the name ‘High-Grade Structured Credit Strategies Enhanced Leverage Fund’ ring a bell?

Question 2: Does the name ‘Bear Stearns’ ring a bell?

Here’s hoping you got at least 50% of that right!

Put the two of those together 12 months ago and the result was a 23% drop in the value of a hedge fund which invested in what are now commonly known as ‘Sub-Primes’. To the historians amongst us with hindsight, it looks like that occurrence was ‘Clue Zero’ that things weren’t all kosher in the financial kitchen.

To those who feel like celebrating momentous dates (and there are always a few) we are able to advise that the traditional gift for a one-year anniversary is paper. Fortunately for you gift givers, if there’s anything there’s an oversupply of at the moment it’s cheap, worthless paper.

But enough about the past, let’s live in the present. Why this week alone we had job cuts, record oil prices, Lehman imploding and Cleveland-based KeyCorp cutting its dividend for the first time in 43 years. All in all, a bad week for the market, right? Wrong! In light of all this ‘good news’ the market went on to post a 0.8% increase last week.

We are unable to understand the run on rose-colored glasses by the population as a whole, particularly since our users continue to get more and more bearish (FC sentiment declined 1.5% this week) while also feeling less and less certain that they’ve got this whole thing figured out (FC Sell-Side Certainty turns negative and falls to 97%)

Perhaps while First Coverage users are concerned about the market, the general population is comforted by the notion that Inflation remains tame as long as you refuse to eat or drive. (That’s a nice way of saying that for those of you content to remain in one place with limited gastronomical choices, the world is your oyster.)

Perhaps many investors (although, again, not our users) feel that the more than $1 trillion in market cap the Financials have lost over the last year is enough punishment for the sins they have wrought on the broader markets as a whole.

And it should be noted that even though Financials remain the most bearish industry on First Coverage, there has been a minor uptick in sentiment towards that group. Some could argue that last week’s market performance (Financials, as a whole industry was only down 0.78%) is indicative of a broader emerging market sentiment that it’s time to forgive and forget…be the bigger man and move on. If only it was that easy.

The sell-side professionals on First Coverage are not quite turning the other check. Mild uptick aside, it’s impossible to start ‘forgiving and forgetting’ the sins of this industry if the entire industry keeps reminding us what a mess they’ve made.

Last week alone:

  • Lehman Brothers announced its first quarterly loss since going public in 1994, $2.8 billion as a result of $3 billion in mortgage-related write downs.
  • Lehman raises $6 billion in capital, money it supposedly doesn’t need to cover losses it really doesn’t have.
  • KeyCorp slashed its dividend for the first time in 43 years, raised its expectations for future writedowns and announced it will seek an additional $1.5 billion in capital.
  • Shares in Washington Mutual were among other financials that got hammered as a UBS analyst predicted Wamu faces an additional $21 billion in writeoffs from mortgages and won’t see meaningful profitability until 2010 or later.

Clearly, our First Coverage users remain reluctant to ignore the facts before them and are continuing to allocate capital in a manner that shows they think the worst for this group is still to come.

Finally, 54% of those surveyed last week by USA Today said their standard of living is no better today than five years ago. The Pew Research Center didn’t mince words when it concluded, “fewer Americans now than at any time in the last half century believe they’re moving forward in life.” A sobering thought in and of itself. However for those investors that felt the consumer’s appetite for things they don’t need is infinite, it’s clearly an eye-opener.

The Consumer has done quite well over the last two weeks while Consumer Non-Cyclicals topped our list of most favored industries (Wal-Mart, Best-Buy, Costco all beating expectations). However all good things must come to an end, and the love the First Coverage user base had for a subsidy-check rich consumer has evaporated over the last week (now replaced by Energy) and it’s probably because of findings just like this.

Until next week…


On May 5th:  Financials begin their 6-week run as the most bearish industry... and still running.

What’s happened:  The S&P Financials Index has lost over 14%.

On June 2nd :  The First Coverage Sell-Side Certainty index declines, sending signals that there might still be some significant surprises left to come.

What’s happened: Over the next two weeks, the VIX has spiked nearly 20% demonstrating the re-emergence of volatility and risk in the marketplace.