Weekly Street Sentiment: Consumer Confidence Down

WEEKLY STREET SENTIMENT (Monday, July 21st)

• Overall market sentiment declines by over 2%
• Most bearish industry reverts to Consumer Cyclicals
• Most bullish industry remains Energy
• Sell-side certainty remains mildly positive at 106%
• Most active area for idea generation is Energy  

WEEKLY COMMENTARY (Monday, July 21st)

First Coverage Market Sentiment declines by over 2%.  Energy remains the industry with the most bullish sentiment, although Basic Materials is a close second. Consumer Cyclicals once again becomes the industry with the strongest bearish sentiment. The First Coverage Sell-Side Certainty Index (FCSSCI) remains in mildly positive territory ending the week at 106.

LOOKING AHEAD…

In efforts to navigate a market in which the financial sector had its worst day ever on Monday and its best day ever on Wednesday, portfolio managers listening to information flow from their sell-side via First Coverage were better prepared than most. 

Sentiment towards Financials, near an all time low heading into the start of this month, began turning moderately more bullish around July 7^th. It’s too early to determine if this shift, while timely, is for the long term or just a call for a short term bounce. Either way, sell-side professionals using First Coverage represented an early valid indicator to those positioning themselves for an uptick in Financials. 

Consumer Cyclicals is now the most bearish industry for the second week of the past three. If you’re wondering why, here are some recent data points which could be influencing sell-side sentiment: 

• June retail sales, up 0.1% when a gain of 1.3% was expected.
• Citi announces $4.5 billion of credit costs because of bad consumer loans.

The greatest single resource in America has not been oil or gold. It has consistently been the consumer’s confidence in their lifestyle and income. Confidence drives spending, spending drives credit and…well you know the rest.  

The sell-side is clearly advocating positions that suggest post a sustained recession, confidence will not turn out to be a renewable resource. Or to play off an oil analogy, the sell-side seems to be suggesting we might have hit ‘Peak Confidence’ and it’s all downhill from here. 

Energy remains the sell-side’s most bullish industry even as the market witnessed historic declines in the price of Crude oil. Unanimous bullishness by the sell-side over the last two weeks could prove to have been a valid contrary indicator. Only time and upcoming data points will determine if this decline turns out to be just another leg down in a longer term uptrend or the start of the market rolling over. 

In the mean time, the sell-side continues to suggest that Crude will rebound and recommend that their buy-side client’s capital remain allocated. 

Until next week…  

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 week with the Dow Jones adding 3.6%, the S&P 500 1.7% and Nasdaq 2.0%.

On July 7^th: “While we are loathe to call a turn in sentiment for the banks, they are showing sentiment numbers significantly more positive than at any point in the last two months.”  

What’s happened since: Financials saw a dramatic turnaround over the last few trading days gaining almost 9% on the week and are now almost 4% higher than they were when we first discussed the turn in sentiment.

 

Comments

[Foosie]

Consumer Sentiment (University of Michigan) is 56.6 percent, extremely low on the scale. Over time, it usually averages 80 percent. That said, when Sentiment is lower than 60 percent, the S&P500 usually experiences double digit gains within the next year.