Weekly Street Sentiment: Energy On Top, Financials Weakest 8 comments
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Derived from the aggregated analysis of thousands of actual trade ideas and data being sent in real-time from the sell-side to the buy-side, the First Coverage Weekly Street Sentiment provides a snapshot of market trends and a unique perspective of the mindset of the Street for the week ahead. The following data has been extracted directly from all information transmitted in the past week by sell-side representatives from more than 250 firms submitting information to portfolio and asset managers across North America via the First Coverage platform.
WEEKLY STREET SENTIMENT
(Monday, August 11th)
- Overall market sentiment declines by 6.5%
- Most bearish industry reverts to Financials
- Most bullish industry reverts to Energy
- Sell-side certainty remains mildly positive at 103%
- Most active area for idea generation is Services
WEEKLY COMMENTARY
(Monday, August 11th)
As we enter the week of August 11th, the First Coverage Market Sentiment declined over 6.5% and sits at its most bearish levels ever. Energy once again becomes the industry with the most bullish sentiment while Financials once again become the industry with the strongest bearish sentiment. The First Coverage Sell-Side Certainty Index [FCSSCI] re-mains in mildly positive territory and ended the week at 103.
PREVIOUS SENTIMENT INDICATED…
On July 14th: "
What's happened since: The market rallies significantly over the last three weeks, the S&P 500 adding almost 5%, and the Nasdaq 8%.
On July 7th: "Financials are showing sentiment numbers significantly more positive than at any point in the last two months."
What's happened since: Financials have moved 8% higher than they were when we first discussed the turn in sentiment.
LOOKING AHEAD…
Last week, the Dow Jones rose 3.6% to 11734, the S&P 500 climbed 2.9% to 1296, and the Nasdaq soared 4.5% to 2414. However, even as rose-colored glasses became the must-have accessory for market participants, the First Coverage Sell Side Sentiment sits at all time bearish levels.
Micheal Santoli, of Barron's observed that 'a struggling market, in its impatience, tries to anticipate the turn so often, with bottle-rocket rallies, that eventually it turns out to be right'. The current level of the First Coverage Sentiment Indicator clearly shows that the sell-side remains unconvinced the market will prove to be right this time.
Disbelief in the recent rally could be coming from a 'been there, done that' mentality. David Rosenberg of Merrill pointed out last week that gains over 200 points in a single day during this 12 month bear market have happened six times. During the bull market of 2002 to 2007, there were no 200 point rallies…nada, zero, zip. The institutional sell-side is clearly telling their buy-side clients that an increase in up-side short term movements rarely equates to a market bottom.
Financials are once again the industry with the most bearish sentiment, narrowly beating out Consumer Cyclicals for that dubious honor. However, clearly showing that Financials and Consumer Cyclical industries are intertwined, Citigroup (C) last week revealed that during Q2 it lost $176 million securitizing credit-card loans. This is a giant neon, flashing, blinking warning sign 100 feet high for an industry that generated billions and billions of dollars in revenue over the previous few years doing this exact thing.
Does the consumer credit situation have the ability to resonate through the financial sector like mortgages did? Our users think so and may be basing it on the fact that Citigroup alone has securitized over $100 billion of credit card loans and delinquencies on those have already started to rise by over 16% since the end of last year.
Finally, Energy remains the industry with the strongest bullish sentiment even as the price of Crude has declined over $20 from all-time highs set weeks ago. The institutional sell-side remains of the belief that recent market moves represent more a reflection of short-term profit taking and the recent U.S. dollar appreciation than a shift in the story behind the longer term uptrend. In addition, wild cards such as tensions caused by the Russia-Georgia flare up and a suspected Kurdish rebel attack on a pipeline in Turkey are keeping the sell-side suggesting that capital remain allocated to Energy.
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I was in the Commerzbank AG this morning in Frankfurt,Germany.Neve... European bankers looked so grim and destroyed.
My sentiment derived from my brain shows Dow Jones below 10,000 in September and below 9,000 in October.Yes,this year,of course.
Don't trust researchers,the reality is rude and if your average mutual fund holdings didn't scare you yet,the market will show you the hell very soon.Just don't sell,sit put and wait to see how money slowly dissapear somewhere.
Dollar strenght = earnings decline for internationals. Get Euro for your goods, convert to dollars, less dollars.
Otherwise Financials in same doodoo as before.
Financials will rule in this bullish cycle in the period ahead. The bond insurers are posting some impressive gains(meeting GAAP standards),even if the hedge fund utilizing accounting based I on "I am short the stock principle" ,thinks that some of these insurers are bankrupt. I suppose that the volatility in the financial sector will continue and individual institutions may have some bad news to report.
Investors do understand that the broadest and detailed issues have been and are being addressed.
The earnings released by the some of the bond insurers are credible
Section 906 of the SOX imposes a fine of twenty years and a 5 million dollars fine for executives who willfully misrepresent the financial facts -that is why I believe that the MBIA's earnigs are correct and bullish for the market.If the fines were just as aggressive for the individuals disseminating misinformation,then some of these bond insurers would be trading 30 dollars higher.
For sure financial sector is undervalued and desrves a major allocation.
> jack
"For sure financial sector is undervalued" Perhaps you'd be kind enough to explain how you actually place a meaningful value on a bank balance sheet at the moment. Credit spreads still suggest that the bankers themselves can't do this, so it's certainly beyond a simple guy like me.
"individual institutions may have some bad news to report" On IMF guesstimates - which are probably no more or less speculative than yours - that spot of bad news we're still waiting for could run to at least another half trillion in write-downs. There's a fair amount of credit contraction in that figure - unless our new best friends at the Sovereign Wealth Funds feel like stepping up to the plate a few more times.
You are out of your freaking mind. Financials are a "minefield" right now. And venturing into that space is financial "suicide" in my opinion. What part of the term "broken business model" do you not understand? Financials will simply not be able to command a higher multiple as they once did because the money is not there to be made. And as for energy, dream on if you think we are headed back to $40 oil. China and India will not cut back on fuel use as they regain traction going into 2009. Alternative energy is a decade (possibly longer) away from posing any substantial replacement value to oil. When an energy company like RIG or XTO is growing earnings at 30-35% per year and trading at a single digit multiple you BUY it not sell it. Once the "weak hands" have been flushed out of their energy positions you will see a massive move up in energy stocks. Stay the hell away from Financials. You've been warned.
Yank
All of the issues that you question ,I have tried to bring to the markets attention via media and the comments to my clients which include Central Banks (Although for a bit longer I am now a President of a Danish Hight Tech Company).
As early as June of 2005 in an interview with Bloomberg ,London(Mark Gilbert),I have predicted the current risks .As late as September 18,2007 ,when the financial universe thought that the subprime related issue are over,on Bloomberg TV(Brian Sullivan interview ) ,during the FED time,my parting words were"this is only the beginning,not the end of the subprime (CDO) issues".
Since I have been in the business ,I have correctly predicted evey cyclical call.
The IMF projected write offs include European institutions(In Europe) and that is where the risk lies although the emerging market economies may be a greater risk.
In the U.S the problems have been identified and are being addressed by the relevant institutions including the FED ,the Congress and the Administration.
The stock market is in the process of consolidation and will rebound to a record highs in the period ahead.
The dollar denominated assetts are cheap ande the financials and the real estate have the greatest relative value.
Some of the bond insurers ie MBIA ,have posted very impressive earnings and others will follow.
Dissemination of "creative data" by some mega shorts in the sector,causes the current pessimism about financial sector.......but that will pass with more detail in the period ahead.
It is not a fiction ,both the economy and the stock market have made the bottom.
The Dow 20,000 and the NASDAQ at 7000,are more of reality than you realize.
Europe ,Asia and the Emerging Market economies ,have yet to face the issues.