The SVB bankruptcy shocked investors.
(Photo: dpa)
Dusseldorf The mood on the German stock market has continued to deteriorate. This is shown by the Handelsblatt survey Dax-Sentiment among almost 8000 private investors. And it doesn’t have to end there, explains sentiment expert Stephan Heibel, who evaluates the weekly survey: “There is still room for further deterioration.”
In the course of this, the leading German index Dax fell by more than four percent in the past week. This Monday, the price decline initially continued before the Frankfurt stock market barmeter stabilized and even turned positive.
The linchpin is currently the 14,800 point mark. There has always been buying interest around this mark, so setbacks stopped in this region. That was the case on four out of five trading days last week. On Monday, too, the Dax turned positive after a minus of up to 2.1 percent and returned above this mark.
However, Heibel warns: “Should the prices fall significantly again, other investors are likely to lose their nerve, fear and panic could spread further and ultimately lead to a sell-off, perhaps even a crash, despite the already negative mood.”
However, this is not his base case. “Sentiment theory favors scenarios in which mood imbalances turn into the opposite,” explains the publisher of the market letter Heibel-Ticker. “With the current already very negative mood, another sell-off, a crash, would be rather unlikely without further negative events.”
The logic behind this reasoning is that the worse sentiment is, the more investors have already sold their shares and the fewer potential sellers remain.
“I therefore stick to my assessment of the past few weeks that a surprise can only occur on the upside,” says Heibel. “If we consider that the great stress on the financial markets in the past week has not led to a crash so far, but only led the Dax to its lower supports, this assessment is still valid.”
Dax still a long way from a crash
In fact, the leading German index has only lost around six percent of its value since the beginning of the banking crisis on March 9, when the lack of money at the Silicon Valley Bank in California became public. So the Dax is far away from a crash and even a correction.
However, the mood on the market has cracked, as the current survey results show. Investor sentiment has now fallen to minus 3.4. Two weeks ago the value was still plus 0.5. However, the end of the survey was before the takeover of the Swiss crisis bank Credit Suisse by its competitor UBS.
Uncertainty among investors is also growing. In view of the still unclear situation surrounding banks in Europe and the USA, the associated value continues to rise and, at 7.7, has reached its highest level since the beginning of July 2022.
Heibel attributes the uncertainty to the fact that the survey participants are worried about whether banks with liquidity bottlenecks will be rescued and whether the form of rescue is sustainable. “Whether this is thwarting the fight against inflation or overburdening public finances: Doubts as to whether a rescue with the overstretched public finances is even feasible seem to be floating around in the minds of investors,” says Heibel.
>> Read about this: Bank stocks plummeting despite Credit Suisse rescue – Risky bonds unsettle investors
The managing director of the analysis company AnimusX does not see a simple solution. He therefore does not expect any news that could lead to price fireworks on the stock markets. “Rather, I expect that a solution will involve compromises and can ultimately only lead to a gradual calming of the markets.”
Slow calming down the most likely scenario
He sees a slow calming down and a slowly rising Dax as the most likely scenario. Improving expectations for the future could prove to be helpful on this path. After the corresponding value fell to its lowest level since the beginning of the year (minus 1.6) in the previous week, it is now back in positive territory at plus 0.6.
The trend reversal was last stronger in mid-January. This suggests that investors see their pessimistic expectations as fulfilled with the most recent setback. The group of optimists, who expect prices to rise in three months, has grown the most in the current survey.
This has also increased the willingness to invest. At plus 2.4, it reached its highest level since the beginning of November 2022. The group of those who want to buy in the next two weeks has risen by five percentage points, while those of potential sellers have fallen by eight percentage points. It is this willingness to buy that stabilized the market on Monday.
The hope that the banking crisis will not burden the market endlessly is also reflected in the futures market. The Euwax sentiment of the Stuttgart Stock Exchange, where private investors trade, has risen to plus four percent. Investors therefore buy more call options, with which they benefit from rising prices, than put options, which increase in value when prices fall.
Heibel concludes: “In the meantime, private investors are obviously speculating on an end to the setback and are increasingly asking for call warrants and corresponding financial products in order to participate in rising prices.”
On the European futures exchange Eurex, where professionals trade, the put/call ratio is up 1.7 percent and indicates a neutral positioning. In the USA, too, the put/call ratio on the most important futures exchange in Chicago is in neutral territory.
There are two assumptions behind surveys such as the Dax sentiment with more than 7800 participants: If many investors are optimistic, they have already invested. Then only a few are left who can 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 informed automatically 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.
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