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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 25th)

  • Overall market sentiment continues to fall and sits at most bearish levels in 5 months.
  • Most bearish industry remains Financials.
  • Most bullish industry remains Energy.
  • Sell-side certainty jumps markedly to 148%.
  • Most active area for idea generation is Technology.

WEEKLY COMMENTARY

(Monday, August 25th)

As we enter the week of August 25th, the First Coverage Market Sentiment is at its most bearish levels in five months.  Energy remains the industry with the most bullish sentiment while Financials remains the industry with the strongest bearish sentiment and has also set a new all-time mark for bearishness. The First Coverage Sell-Side Certainty Index [FCSSCI] increased by almost another 20 points to end the week at 148.

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 2 weeks down nearly 5%, while the broader markets are flat.

On August 18th:  “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.”

What’s happened since: Energy stocks increase by almost 5% in the last week.

LOOKING AHEAD…

Financials continue their reign as the most bearish industry on Wall Street as determined by the institutional sell-side. In addition, heading into this week the industry is currently at an all time low in sentiment.

While some argue that the issues surrounding financials has a ‘been there, done that’ feel to it, take a look at the upcoming week to see where people’s attentions are going to be focused:

  • Lehman’s potential take-out? Check.
  • Fate of Freddie and Fannie? Check.  
  • Fresh numbers on housing? Check.
  • What the FOMC said in their last meeting? Check.

Key stories in this market environment continue to revolve around Financials and the increasingly complex ramifications of the current crisis.  Based on the data being sent through First Coverage to the buy side, it’s clear that the sell side feels this story has yet to reach a level that represents any degree of ‘closure’, or that all the bad news is already priced in.

Nonetheless, the staying power of the story is impressive over the last 15 months, and while bears would suggest it has occurred due to increasingly bad fundamentals in the industry, bulls would counter that it is the result of a downward cycle of investor’s confidence about the industry. Some might say the true answer is immaterial.

Barron’s reported this week that Brown Brothers Harriman managing director Charles Blood recently stated that government action may have turned the nation's "financial crisis into a crisis in the financials." Regardless of the veracity of that statement, clearly the sell side understands that both can cause significant under performance, both are hard to climb back from, and both seem to be good enough reasons to keep suggesting that the buy side continue to be anywhere but invested in Financials.

The overall market continues to sink in sentiment and, based on the numbers, the sell side is anticipating another leg down in overall market performance. That being said, at extremes sentiment is always subject to surprises and the last time First Coverage Sell-Side Sentiment was this low was prior to the spring rally which started in mid-March.

One area where the sell side continues to suggest allocating capital is in the energy complex. The sentiment towards Energy amongst the sell-side on First Coverage is at its most bullish level since the end of June. Last week’s 5% energy rally combined with a jump in Crude back to $120 before an end-of-week fade seems to have been just the data points needed to convince some of the sell side to get their buy-side clients back into Energy as a long position for the upcoming weeks.

Until September 8th

Source: Weekly Street Sentiment: Financials Establish New Mark for Bearishness