Weekly Street Sentiment: From Bad to Worse

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 |  Includes: AIG, DIA, FMCC, FNMA, KRE, LEH, MER, OIL, QQQ, SKF, 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, September 15th)

  • Overall market sentiment stabilizes, rises modestly but still sits at second most bearish level since inception of First Coverage Sell-Side Sentiment Indicator.
  • Most bearish industry reverts to Financials
  • Most bullish industry remains Energy.
  • Sell-side certainty remains negative.
  • Most active area for idea generation is Financials.

WEEKLY COMMENTARY (Monday, September 15th)

As we enter the week of September 15th, the First Coverage Market Sentiment remains at markedly bearish levels, although slightly off last week’s all time lows.  Energy remains well off its bullish highs but also continues to be the industry with the most positive sentiment  Financials re-emerges as the industry with the strongest bearish sentiment as well as the one with the most activity. Finally, The First Coverage Sell-Side Certainty Index [FCSSCI] remains negative for the second week in a row indicating a continued lack of confidence by the sell-side in the direction this market is about to move.

PREVIOUS SENTIMENT INDICATED…

On August 25th: 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.

What’s happened since: Broader markets have declined by 4% during the last 3 weeks.

On July 21st: Extreme bullishness by the sell-side over the last two weeks (re: Energy) could prove to be a valid contrary indicator.

What’s happened since: Major energy indices are down almost 15% since that date and crude has fallen over $30.

LOOKING AHEAD…

In a week full of government bailouts, bad employment numbers, a financial company on the brink …and another…and another, it’s no wonder that the sentiment of institutional sell-side users remained near record bearish levels even as the Dow Jones rallied for the first time in five weeks ending up 202 points or 1.8%.

The week started with a focus on the Fannie Mae (FNM) and Freddie Mac (FRE) bailout but by the time Friday hit, the story was Lehman Brothers (LEH) and their eventual disposition of their once proud investment bank. This time the government is publically declaring that it won’t be putting up any of its cash to help a ‘brother’ out. Could be that for once the government feels much like our user base and remains convinced that while more trouble’s brewing it has no real ability or understanding to quantify how much or for how long.

Over the past week, the user base on First Coverage matched almost every single suggestion to the buy-side to allocate capital (either long or short) with a suggestion that capital be taken off the table. This level of uncertainty, quantified by the Sell-Side Certainty index being negative for the second week in a row will most likely continue until someone…anyone…knows the value of what remains on the investment banks’ books. If things are as dire as some predict, even as the rest of the market retested their 2008 lows last week, the financials remain around 20% above levels seen in July. Clearly if our sell-side users are correct, this industry has much more room to fall.

Finally, when it comes to Financials, Oppenheimer’s analyst Meredith Whitney (who has built a name for herself by simply being right) commented recently that even as revenues for Wall Street firms have declined 63% during the first half of the year, compensation costs have declined less than half of that. A slew of upcoming layoffs are probably in the works to make the books balance, which also goes to explain the continued bearishness of the institutional sell-side on their own industry’s future.

For the second week in a row, there are no industries with bullish sentiment levels. While Energy continues to be the ‘Most bullish’, the sell-side is advocating it as a place to be if you have to be invested, rather than with the conviction levels and certainty we witnessed in the spring of 2008. That being said, Basic Materials jumped dramatically from bearish territory, to nearly bullish territory over the last week. Whether this is a ‘blip’ or a real turnaround is something we’ll have to wait a couple weeks to figure out.

Finally, the fallout from the tightening credit crisis has been so pervasive that the little things in life like ‘Doing the Dew’ are even getting impacted. Indra Nooyi, PepsiCo Inc.'s (NYSE:PEP) chairman and chief executive was on CNBC this last week in a brilliant appearance that mingled both blatant product placements with current economic forecasting. During the interview she commented that as the construction bubble continues to deflate, store operators have informed her that those who used to stop by on their way to the job site to pick up a ‘Dew & Doritos’ are no longer coming by and hence, even fast food is feeling the pain.

Yes, the ripples of this crisis are farther and wider than we dare imagined.

Until next week.