Dax sentiment: Investors are becoming more and more pessimistic

Dusseldorf The German leading index Dax has risen by more than five percent within two weeks and is again above the 14,000 point mark. Nevertheless, the mood on the stock market is down and there is little interest in buying, as the Handelsblatt survey “Dax Sentiment” among more than 7000 private investors shows.

“Imagine, we have a rally – and nobody goes there,” commented sentiment expert Stephan Heibel from the analysis house AnimusX.

Because despite the stabilizing prices, investors remain cautious. “The mood is still not brightening. On the contrary, it’s getting worse,” says Heibel, who evaluates the weekly survey for the Handelsblatt.

Investor sentiment, which measures market sentiment using a number of indicators, remains at a value of minus 4.8. Readings from a level of minus four imply extreme depression among investors. Sentiment has been negative for 20 weeks now.

Every second respondent sees the Dax currently still in a downward impulse. The group of those who identify a bottom formation and believe that the worst is now over, however, has fallen further to 14 percent.

Not even two positive stock market weeks in a row have been able to lift the mood, because nobody knows how sustainable the recovery is. “Investors are neutral with regard to further developments on the stock market. You could also say they have no opinion,” says Heibel.

The future expectation remains at a value of zero. Only every fifth respondent expects the Dax to be on an upward impulse in three months. In contrast, four out of ten respondents believe that the index will still be falling in three months’ time or is only just beginning to bottom out.

At least the extreme uncertainty from the previous week has receded somewhat, from 5.8 to 4.5. Almost every second respondent had expected the course of the past week to be something like this.

However, buying interest remains low at 1.6 and remains in neutral territory. At turning points in price history, it was five and higher. Currently, however, only just under every fourth respondent wants to buy in the next two weeks.

Several factors are causing uncertainty: In the past week, the most important indices Dow Jones and S&P 500 in the USA have continued to fall. The Dow Jones put down the eighth week of losses in a row – the last time it was 99 years ago. It was the seventh consecutive week of losses for the S&P – only three more times since World War II.

>> Read about this: Historic losing streak: S&P 500 ends seventh straight week in the red

The background to the losses is the growing doubt that the US Federal Reserve will be able to reduce inflation from currently more than eight percent towards the target value of two percent without stalling the economy. Because higher interest rates make investments more expensive and reduce the scope for governments and companies to invest.

As a result, powerlessness is spreading in the USA, Heibel observes: “Fighting inflation without risking a recession is no longer possible.”

These concerns have currently replaced the Ukraine war as the most important topic on the markets. Nevertheless, the conflict is still present and is keeping the markets nervous. Added to this is the uncertainty surrounding the strict zero-Covid policy in China and the open question of how the lockdowns there will affect the global economy.

>> Read about this: Lockdowns in China, inflation in Europe, downturn in the US: the global economy is at risk

All of these uncertainty factors find expression in a list of superlatives that Heibel draws up:

• The longest period of negative sentiment in Dax sentiment since the survey began in 2014.
• In the US, the number of optimistic private investors (bulls) is the lowest it has been in 40 years. Only one in four investors is optimistic, while one in two is pessimistic.
• US fund investors have almost completely withdrawn from the market. Their investment rate has fallen to 19.5 percent. Since the great financial crisis from 2007 to 2009, the value has only been below 20 percent in the 2020 corona crash, the 2015 euro crisis and the 2011 Greek crisis.
• The most recent survey by Bank of America showed that the investment ratio of international fund investors is lower than it has been since the corona crash.
• The willingness to invest is virtually non-existent on the bond market, as an extended survey by AnimusX shows. “The results are currently outside the display range that was sufficient for the past 15 years,” explains Heibel.

For investors, however, the development should not be a reason to completely withdraw from the market, says Heibel. “Anyone who sells now will regret it in two years at the latest.”

He recommends holding positions or moderately buying more in order to lower the average entry level due to the falling prices: “If the world doesn’t end, as it has repeatedly done over the past many thousands of years, then I don’t want to be on the wrong foot getting caught.”

If, on the other hand, the geopolitical situation worsens and the West’s conflict with Russia escalates, there are probably more urgent problems than one’s own investment strategy, says Heibel: “I’m not interested in whether I was wrong with an investment strategy that was too cautious should.”

There are two assumptions behind surveys such as the Dax sentiment with more than 6500 participants: If many investors are optimistic, they have already invested. Then only a few are left who could still buy and thus drive prices up. Conversely, if investors are pessimistic, the majority of them have not invested. Then only a few can sell and thus depress the courses.

Do you want to take part in the survey? Then let yourself be automatically informed about the start of the sentiment survey and register for the Dax sentiment newsletter. The survey starts every Friday morning and ends on Sunday afternoon.

More: What we are seeing in the financial markets is not a crash but a painful transformation