Sell-Side Divided in Outlook for 2010
19 January 2010
There Are Two Sides to Every Story and Here are Both of Them!
It’s normal in periods of confusion to take a step back and ponder what might come next. It’s usual but it’s not what’s happening with the sell-side. Instead the sell-side is abdicating the realm of confusion and replacing it with steadfast conviction. Conviction that this market is ready to do something…even if there is no clear cut consensus on what that “something” might be.
2010 data doesn’t necessarily support one side or the other when it comes to deciding if we’re in the midst of a spectacular yet justified bull run or on the precipice of the conclusion to an incredible bear market rally. Point…it’s still a jobless recovery…counter-point less jobless than before. It’s still a cautious consumer but less cautious than before. Market indices all started with a great first week and then last week finished down. In short, this market has not yet truly figured out what it wants to be when it grows up in 2010!
Always with Conviction, Sometimes Correct!
However, the market’s uncertainty hasn’t stopped the sell-side from thinking they have it all figured out. It has taken less than three full weeks for most of the sell-side to come off the sidelines and line up on one side or the other of the 2010 market debate.
The volume of ideas being sent from the sell-side to the buy-side in real time last week was near record levels. New positions being suggested by the sell-side professionals to their institutional buy-side portfolio managers are double the level they were in mid-December. Since each idea represents an individual whom believes they have this market figured out, the sell-side has made an amazing transition from cautious and hesitant during the first week of 2010 to market players with immense conviction today.
Another way we gauge Sell-Side Certainty is by examining the amount of new capital that the sell-side is suggesting the buy-side allocate into the market and comparing it against the amount they are suggesting they pull out of the market. This ratio of new ideas being opened divided by the number of ideas being closed is represented by our Sell-Side Certainty Ratio and is also near record levels. The sell-side is very active and advocating positions aggressively, but the sell-side is not unified.
So, is that Last Year’s Fashion or this Year’s Style?
During the first week of the New Year, we saw the sell-side attempt to convince their client base to take it slow, be cautious and move into areas that were tangible like Basic Materials, Oil and Industrials. Two weeks in, that story seemed to be falling on deaf ears as the buy-side and the market rally continued regardless of the advice being doled out by the sell-side.
Realizing that being late to the rally was going to be remembered as just being “wrong” on the market, caution was abandoned by the sell-side and many brokers jumped back into the market advocating a continuation of the same stories that carried us all through 2009.
But now, one week later, the battle lines are being drawn. The interesting thing is that no one’s on the sidelines anymore. However, even as old stories like Technology increase in sentiment, we also see new stories beginning to emerge again in Oil & Gas and Basic Materials. At the same time, Financials are falling in sentiment and Health Care is holding onto its place as the industry associated with the most bullish sentiment from the sell-side.