WEEKLY STREET SENTIMENT (Monday, July 7th)
- Overall market sentiment falls by a record 9% over the last two weeks.
- Most bearish industry is now Consumer Cyclicals.
- Most bullish industry remains Energy.
- Sell-side certainty declines over 25 points to 91%.
- Most active area for idea generation remains Energy.
WEEKLY COMMENTARY (Monday, July 7th)
First Coverage Market Sentiment fell by a record 9.0% over the last two weeks heading into market open Monday. Energy remains the industry with the most bullish sentiment while Financials have been replaced by Consumer Cyclicals as the most bearish industry. The First Coverage Sell-Side Certainty Index (FCSSCI) plummeted over 25 points to turn negative once more and settle at a level of 91.
“Dog bites man!” Not a story.
“Man bites dog!” Mildly interesting story.
“Bear bites Bull!” Is it even news anymore?
Two weeks ago, Sell-Side Bulls took their stand (‘last stand’ in hindsight) and advised clients that in their opinion the market had reached bottom.
Give ‘em an ‘A’ for effort, but an ‘F’ for timing.
With the Dow dropping 1.5% last week, the NASDAQ finishing down 3%, and gold and oil finishing the week higher… if there’s an equivalent of ‘Bulls throwing in the sentiment towel’, that’s exactly what we saw happen on First Coverage. Simply put, we have seen bulls on First Coverage become a rare, almost endangered entity.
Even as those trying to ascertain overall market direction took their lumps, sell-side professionals focused on sector allocation performed brilliantly. A recent University of Chicago study found a stock's price reacts 80% of the time to market and sector-related catalysts, with corporate fundamentals and valuation metrics a distant third and fourth. It would seem, to crib a phrase from the elections of 1992, if you really want to make money, ‘It’s the sector allocation Stupid!’.
Energy was and continues to remain the industry with the most bullish sentiment even as others call a top at $145/barrel. This week, the consensus on First Coverage remains that capital should stay allocated to Energy. In fact it’s next to impossible to find sell-side firms willing to go on the record to their buy-side clients and actually suggest otherwise.
A weak dollar, ongoing fear of an Israeli conflict with Iran and this week’s report of lower-than-expected U.S. crude inventories have all contributed to oil's recent rise and support the sell-side’s ongoing bullish call.
The ‘Financial Bears’ who continued to short the industry proved their intelligence once again as they profited from an additional 8% decline. The latest move brings the total decline since Financials became the most bearish industry on First Coverage 2 months ago to more than 20%
But things are changing.
We have a new industry which has generated more scorn amongst the sell-side than their employers. Sentiment surrounding Consumer Cyclicals are now reflecting more bearishness than Financials and while we are loathe to call a turn in sentiment for the banks, they are showing sentiment numbers significantly more positive than at any point in the last two months.
The University of Michigan said its index of consumer sentiment [ICS] plunged sharply in June, while the Bureau of Economic Analysis reported a sharp increase in consumer spending in May, mostly thanks to rebate checks. Combined you now have a consumer worried about the future who has already spent their free government subsidy. All together this seems to be more than enough to make the sell-side professionals on First Coverage give up on the notion that the Consumer will be able to help the economy spend our way out of this mess.
Until next week…
PREVIOUS SENTIMENT INDICATED…
On May 5th: Financials begin their 9-week run as the most bearish industry
What’s happened: The S&P Financials Index has lost over 20% including 8% in the last 2 weeks.
On June 16th: ‘‘Even as the market rose this 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.”
What’s happened: The S&P 500 has declined over 7%.