Weekly Street Sentiment: Energy On Top, Financials Weakest

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 |  Includes: DIA, IVV, QQQ, SPY, XLE, XLF
by: First Coverage

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: "Institutional sell-side professionals drove overall market sentiment moderately higher."

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 (NYSE: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.