It is a market phase characterized by great uncertainty.
(Photo: dpa)
Dusseldorf The German stock market is currently at the level of early September. In principle, nothing has changed for investors in the past few weeks. However, the mood on the stock market has deteriorated significantly, according to the Dax-Sentiment survey of more than 7,000 private investors in the Handelsblatt. “We’re panicking again on the stock market,” explains sentiment expert Stephan Heibel, who evaluates the weekly survey.
The leading index Dax increased by almost eight percent in September – without there having been any noteworthy news. “It was a short-covering rally,” says Heibel.
This is the term used to describe a situation where professional investors stop betting on the downside for fear of taking losses into the up market, triggering a rally. “At the end of this technical counter-movement, an equally violent sell-off followed, which led the markets back to the starting level,” says Heibel.
This slowed down the slight upward trend in investor sentiment. “Our barometer fell to minus 6.4 percent and shows fear and panic,” reports Heibel.
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The trigger is the concern about significantly rising interest rates and their effects on the economy. Jerome Powell, head of the US Federal Reserve, recently emphasized that he wanted to fight high inflation at all costs. Even if company figures are already pointing to an impending recession, which will become all the more severe the more vehemently the Fed takes action against inflation. Powell has thereby maneuvered the Fed into a situation in which it can only lose, Heibel analyzes before the next interest rate decision this Wednesday evening.
One possibility would be that the Fed raises the base rate by 0.75 percentage points and henceforth observes how inflation develops. “Then that’s wrong, because you don’t fight inflation at all costs, as emphasized a week ago,” says Heibel. “So it’s quite possible that inflation will pick up again in a few weeks after a little breather.”
The second option would be for the Fed to raise interest rates by one percentage point and stoically announce further rate hikes for the coming meetings. “Then that’s also wrong, because inflation will be brought under control, but at the expense of the economy, which threatens to drift into a severe recession if interest rates are too high,” says Heibel.
September lives up to its bad reputation
Against this background, the managing director of the analysis company AnimusX sees further downside risks: “September has a bad reputation on the stock markets and is currently living up to its reputation. There is much to suggest that a final sell-off is underway but not over yet.”
If such a final sell-off ended, that would be an entry signal. Because then all potential sellers would have sold their shares and a few buyers would be enough to move the price back up.
How far such a sell-off can move the Dax down is the crucial question. From a sentiment point of view, the index is currently in a no-man’s-land between 12,600 and 13,500 points. “Some speculators play with daily changing signs. Only if this range is broken out will the long-term investors be forced to rethink,” says Heibel.
The range between 12,400 and 12,600 points is crucial
He considers the area between 12,400 and 12,600 points to be crucial, i.e. the area between the current Dax level and the annual low of 12,391 points from July.
“There it must be shown whether the list of negative developments after ten months of bear market is sufficiently taken into account in the current price level or whether an impending recession requires even lower share valuations,” says Heibel.
He believes it is possible that the current yearly low and a sell-off above the yearly low will stop. Because the Dax sentiment is already showing fear and panic. Two-thirds of those surveyed currently see the leading German index in a downward trend.
“Coupled with a high degree of uncertainty (minus 5.7 percent), we can assume that a panic zone is not far away,” explains Heibel. Because more than half were surprised by the recent setback. 59 percent of those surveyed stated that their expectations were not met at all or hardly at all.
Future expectations are also negative. “The value of minus 0.9 percent shows that investors are not expecting any improvement in the coming months either,” says Heibel. Only one in five respondents believes that prices will rise again in three months.
“Against this background, the willingness to invest of plus 1.2 percent can only be interpreted as speculative and in both directions,” explains the sentiment expert. “Speculative because there is still a lack of confidence in the future. And both directions, because in the current market turbulence, speculation on rising and falling prices alternates in quick succession.”
However, there are also points that suggest that the Dax will fall below its previous low for the year. “Although the investment rate has already come back sharply this week, it is only listed at an average level. If there is fear and panic, a lot can still be thrown onto the market, which would further depress prices,” warns Heibel.
This assessment seems to prevail among private investors at the moment. The Euwax sentiment of the Stuttgart Stock Exchange shows a slight hedging tendency at minus four. So you haven’t used the recent setback to speculate on rising prices, but rather to protect yourself against further price losses.
On the other hand, institutional investors who hedge themselves via the European futures exchange Eurex are neutral. At 1.4 percent, the put-call ratio, i.e. the ratio of bets on rising to falling prices, corresponds to the average of the past few months.
Bad vibes in the US
In the US, the put-call ratio on the Chicago Futures Exchange (CBOE) is trading at 0.9, showing increasing investor interest in hedging against falling prices. At 34 percent, the investment rate of investors is slightly higher than in the previous week, but still extremely low.
So pessimism prevails in the US. This is also shown by the relationship between optimistic investors (bulls) and pessimistic investors (bears): there are currently 20 percent more bears than bulls.
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.
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