June 28, 2010

Street Sentiment Is Skidding

Sell-side opinion just had its fourth-straight week of decline, according to First Coverage.

The First Coverage Market Sentiment Index tumbled last week, its fourth-straight week of decline and another clear sign of a downward trend, according to the organization.

After teetering at 60.0 in mid-May, the highest level since the index began, Street sentiment fell to 57.1 last week. The drop in sentiment was 2.1%, worse than the 1.5% drop of the prior week.

Plus, the index flashed bearish, after showing bullish signs the prior seven weeks.

Sentiment fell in seven of the 10 industries, not quite as bad as nine the week before. Four of the seven decliners this week fell by 5% or more, with health care leading the way down with a 9% drop. Basic materials and telecommunications, though, managed sturdy gains of 6% and 5%, respectively.

After steadily climbing in industry rankings for sell-side sentiment the last two months, the financial sector may be running out of gas, according to First Coverage. It fell 3% last week.

Derived each week from an aggregated analysis of thousands of trade ideas and data sent in real-time (on the First Coverage platform) from more than 300 sell-side firms to portfolio and asset managers on the buy-side, the First Coverage Weekly Street Sentiment aims to provide market-watchers with a snapshot of trading trends and the Street's perspective of the days ahead.

The DJIA declined 2.9%, while the S&P 500 and Nasdaq both fell 3.7% during the week ended June 25.

The Fed is very worried about the economy and should keep interest rates low for a long time, the group concludes.

Another negative for the overall economy was the downward revision on Q1'10 GDP. Advanced GDP was announced at 3.2%, revised down to 3.0% a month later, and last Friday revised down to 2.7%. That means GDP entered Q2'10 on a downward trend.

As has been the case for many months, the focus of economic and market analysis is on employment. This is the week of the giant of reports in this area. The Friday employment report for June will overhang the market all through this week.

Consensus forecast is for a decline of 110,000, but no one knows how many census workers were dropped. Don't focus on the headline number.

The Friday report will be preceded on Wednesday by the ADP payroll report, which often gives indication of what is to come in the private sector part of the Friday report. The weekly jobless claims report on Thursday reflects claims made after the June survey data reported in the Friday employment report, so it is not indicative of Friday numbers.

Weekly jobless claims last month were about flat with the prior month.

Even though there is a summer holiday weekend at the end of this week, this is not a good week for investors to be away from the market.

This is one of the peak weeks for pre-announcements on Q2'10 earnings. The ratio of negative to positive earnings pre-announcements at 1.2 for Q2'10 is running well below the 2.1 average.

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