Who comprises "the market"?
When we talk about "the market" pricing in sales growth of x%, or generally whether "the market" is bullish or bearing on a name, who exactly are we referring to? Is it sell-side consensus? And if so, is consensus a true representation of the actual positions investors have on the bull and bear sides?
Depends on who you're speaking to but it can be consensus especially when talking about pricing in certain metrics. Unfortunately, consensus is probably rarely a true representation of the market.
What do you mean by depends who you’re speaking to? I guess my question is in fact who one should speak to to get a sense of the market.
I mean some people will say "the market" and mean consensus and some people will not. What the latter is speaking of I'm still unclear on.
Also speaking to the sell-side is not just good for sell-side views but often they can give colour into what their OTHER clients are thinking. Obviously, they're not going to say "Tiger told me this but Maverick said this" but they might say "hedge funds seem to think X". So basically sell-side analysts can sometimes act as information brokers. Depending on how the bank is set up, this could also be the role of equity sales guys.
I'm not sure if I'm 100% right on what I've just said but that's the impression I've gotten so far in the industry.
Some people will refer to sellside consensus as the market, some will refer to the market as buyside consensus / ‘whisper number’
In practice the market on a short term / quarterly basis is mainly determined by the average expectations of multimanager pods in a name and on a longer term basis by long only / long biased hedge funds
Figuring out what the market is pricing in is always a guess as everything is much more complicated than that (there are probably 3-5 KPIs the ‘market’ is focused on at any time, funds will be trading on leading indicators / alt data, and passive flows and algos generally do their own thing anyway distorting the whole picture)
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