Our monthly sentiment run is a behavioral, market-based gauge of investor sentiment in the Basic Materials Sector. Any relative performance measure is tied to the benchmark S&P 500 Materials Sector INDEX (GICS). Further screening methodologies are included in the link to the tracker below.
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- Looking at short-interest, 5 of the top 12 least shorted names are in the Gold Mining & Chemicals space with large-cap Diversified Metals and Miners being the most heavily shorted (FCX, AA, TCK, AWC, FMG). With the reflation in commodity-leveraged sectors from the February lows, short-interest has declined 2-5% of float in the aforementioned 5 large cap miners. Gold Miners and Trading & Distribution are the least heavily shorted sub-sectors with Commodity Chemicals, Coal, and Aluminum the most heavily shorted.
- 9 of the top 12 with the lowest buy ratings are in the Metals & Mining space, with 4 of those 9 being Gold Miners. Forest Product companies West Fraser Timber and Canfor Corporation have the highest sell-side “BUY” ratings in the sector. Construction Materials is the other sub-sector with the highest sell-side “BUY” ratings
- Combining consensus “buy” ratings and short-interest, Forest Products, Diversified Chemicals, and Specialty Chemicals names have the most positive relative sentiment when combining both metrics. Diversified Metals and Mining, Aluminum, & Steel have the most negative sentiment.
- With the move in the precious metals against a depreciating USD YTD, relative outperformance, declines in volatility premiums, and net futures and options positioning all suggest the market views Gold Miners much more favorably vs. the beginning of 2016. Earnings estimates have also been revised higher with little sector short-interest prices as much of gold production and sales in the sector is left unhedged. Looking at gold derivative markets, the market has gone from a consensus net short futures and options position moving into 2016, to a consensus long position in gold (TTM and 3 year z-scores are tracking +2.2 and +2.7 respectively). With that being said bullish price and VWAP momentum and the bullish rate-of-change in contract positioning and open interest have slowed substantially month-over-month.
- The market has treated the Fertilizer and Ag. Chemicals relatively poorly over the last year with bearish top-down macro and industry fundamentals weighing on the sector. MOS, POT, CF, and YARA are among the top 12 underperformers relative to the XLB on a 1-mth window. YARA, AGU, and K+S are trading -2.5, -1.9, -1.9 (SIGMA) on a relative basis below the S&P 500 Materials Index on a 6-mth window. YARA, AGU, and CF are trading -2.5, -1.8, -1.8 (SIGMA) on a relative basis below the S&P 500 Materials Index on a 1-Year window.
- The largest sector divergences in growth metrics (TOP-LINE, OPERATING, BOTTOM LINE) exist in the mining space. We expect a downward revision in sell-side estimates in the space as many mining company expectations still need to be taken down while some are already discounted. Earnings growth estimates remain depressed in the large cap-diversified Metals & Mining Companies (TCK, VALE, FMG). Gold Miner earnings expectations have been upwardly revised with the YTD move in gold prices while some remain depressed. We attribute any depressed gold miner earnings expectations to a lag in sell-side revisions. 5 of the top 12 names with the highest earnings growth expectations are Gold Miners (EGO, ACA, AEM, GG, AUY).