Weekly Street Sentiment: Sell-Side Looking for Financials to Fall

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 |  Includes: DIA, IVV, QQQ, SPY, 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 18th)

  • Overall market sentiment  remains near all time bearish levels 
  • Most bearish industry remains Financials
  • Most bullish industry remains Energy
  •  Sell-side certainty jumps markedly to 129%
  • Most active area for idea generation remains Services

WEEKLY COMMENTARY

(Monday, August 18th)

As we enter the week of August 18th, the First Coverage Market Sentiment remains near its most bearish levels ever.  Energy is still the industry with the most bullish sentiment while Financials remains the industry with the strongest bearish sentiment. The First Coverage Sell-Side Certainty Index (FCSSCI) increased by over 26 points to end the week at 129.

PREVIOUS SENTIMENT INDICATED…

On August 11th:  “Financials are once again the industry with the most bearish sentiment,”

What’s happened since: Financials finish the past week down nearly 2%, while the broader markets show small gains. Perhaps more importantly, this week’s levels contribute to the worst 2 week sentiment reading since the middle of May 2008.

On May 12th: “This week we also witnessed another round of our favorite game…‘who has less money…the banks or the consumers?’ According to the Sell-Side, Financials won in walk and the most bearish industry by sentiment reverted once again to Financials.

What’s happened since: Immediately after posting one of the worst two week readings in First Coverage Sentiment history, Financials began a 30% decline in value over the next two months.

LOOKING AHEAD…

The greatest concern this week amongst the institutional sell-side could very well be that regardless of what’s happening in America, it finally seems as if the rest of the world has caught the US’s economic woes. The European economy retracted in the second quarter with GDP off 0.2%. Asia saw Japan’s 2nd quarter GDP fall at an annualized rate of 2.4% and there have also been slowdowns in areas including Singapore, South Korea and Vietnam. No one is flat out screaming global recession yet, but many sell-side institutions using First Coverage are whispering it to their buy-side clients.

While bulls find solace in the US Dollar rally, others clearly believe that this strength has a lot more to do with a realization that the global situation might be worse ‘out there’ than previously thought and should not be interpreted as a reflection of reaching a bottom in the US markets.

Energy remains the most bullish by sentiment, even as there is no ignoring the fact that oil has fallen from $147 to $114 in just over five weeks.  Clearly speculators have been fiercely unwinding their long positions and others are convinced that the slowing global demand we just spoke of will moderate the value of commodities going forward. However, based on the data going through First Coverage, the institutional sell-side believes that even with a slowing global picture, (i) demand in places such as China and India, combined with (ii) continued military uncertainty in Russia and Georgia topped off by (iii) American politician’s inability, for the eighth time, to pass a bill allowing for an extension of alternative energy tax credits all mean that the energy bull market is far from over.

Finally, the Financial industry continues to be the most bearish by sentiment. This week’s number contributes to the industry’s worst back-to-back sentiment levels since mid-May 2008 and that immediately preceded a 3-month, thirty percent tailspin.  This week’s levels also confirm that the slightly more bullish tone to the Financial industry that existed within the First Coverage universe off and on for the last 6 weeks is now completely off.

Why the loss of that ‘loving feeling?’ Not certain, but the fact that JP Morgan wrote off $1.5 billion in mortgage-related notes, while adding that trading conditions have substantially deteriorated couldn’t have helped. Neither could the fact that UBS continues to write off anything that isn’t nailed down. And you know things are getting bad when even Goldman Sachs has analysts downgrading its stock and lowering anticipated earnings.

Until next week…