Sentiment Addendum: Earnings Revisions & Advisor Sentiment

Here are two additional data points to keep in mind for this week’s sentiment overview of the markets:

Advisor Sentiment
The gap between the investing public’s sentiment and financial advisor’s sentiment is growing. The Rydex SGI Advisor Confidence Index (ACI) which climbed to a 3 year high in November 2010 continued to inch higher in December 2010. The index which measures the sentiment of financial advisors towards the US economy and stock market ticked up to 116.13 – the highest level since February 2007:

To compare and contrast this level of confidence with that shown by the surveys for consumer confidence, see yesterday’s sentiment coverage.

Analyst Earnings Revisions
The latest earning season is young but US companies have been able to deliver strong numbers and analysts as a group are, as usual, clambering to catch up. The revision of earnings, either up or down, is a good barometer of market sentiment and has been able to provide very good indicators of cheap and expensive zones in the market. For example, consider that in April 2009 – as a group – analysts were heavily backpedaling on previous earnings estimates. The low then was even more pronounced than that which marked the end of the 2002 bear market.

But now we are seeing the opposite as earnings revisions are ramping up at an alarming rate. According to Bespoke Investment Group, over the past four weeks, 15.9% of the S&P 1500 stock universe have had their earnings revised upwards. This is the highest since May 2010 when the market had just made an intermediate high:

Source: Bespoke Investment Group

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5 Responses to Sentiment Addendum: Earnings Revisions & Advisor Sentiment

  1. Tiho says:

    Nice post summarising the “newbs”. Analysts are of the view that good times are back… for good! However, money printing has never created a sustainable expansion, so when the life support is removed (government spending), I think the economy could have a cardiac arrest.

    Market is of course loving this whole QE 2 thing. I am of a view that the market is entering a correction in the short term, but the primary support according to the Dow Theory should hold. Sentiment is very bullish and the market is overbought, as you outlined in recent weeks as well, but I think we can go a bit higher after the correction. We are in a cyclical bull, but a secular bear, so the run from March 09 lows is becoming quite mature at 99 weeks in running with the bulls (Spanish style vertically up from 666).

    Therefore, I am not sure how much higher we will go, as majority of the gains are now gone!

  2. Pingback: Sunday links: limits and dangers Abnormal Returns

  3. Matt says:

    FYI, this recent research paper concludes that a large gap in sentiment between retail and institutional investors is good for a contrarian play against the retail investors.

    Relative Sentiment and Stock Returns by Edelen, Marcus, and Tehranian

    Your current data would thus imply a bullish future for stocks.

  4. Pingback: Sentiment Overview: Week Of February 11th, 2011 | tradersnarrative

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