It is a market phase characterized by great uncertainty.
(Photo: dpa)
Dusseldorf Will there still be a year-end rally? After evaluating the Dax-Sentiment survey by the Handelsblatt and other indicators, the answer is: Without very positive news, the chances of share prices climbing further by the end of the year are slim.
There are no extreme sentiment readings or an imbalance in investor sentiment. Investor sentiment, which only recently turned positive for the first time this year, remains moderately positive.
That was different at the end of September, when sentiment expert Stephan Heibel derived a bottoming out from the panic among investors, which then led to a rally with an increase of more than 20 percent in the past nine weeks. “Investor mood initially indicates a price bottom for the Dax,” was the headline at the time.
As in the previous week, the mood between professionals and private investors remains different: private investors are currently hedging their positions against setbacks, while professionals are betting on rising prices – perhaps because they want to improve their performance so close to the end of the year.
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“I can understand both points of view,” says Heibel. Because the most important topic on the financial markets at the moment is inflation. And after the US Federal Reserve tried for many months to contain inflation with extremely large interest rate hikes, it could now switch to a more moderate pace and wait and see how the interest rate hikes already carried out have an effect.
After all, the key interest rate rose by 3.75 percentage points this year. There hasn’t been such a violent rate hike cycle in decades.
The different sentiment could lead to sideways trending prices. The large hedging tendency of private investors should give the stock market a stable basis. Because when the private investors sell the put products, the Dax index is bought again. This works like a short sale.
When selling short, short sellers first borrow shares and immediately sell them in the hope of being able to buy them back at a lower price before the redemption date. At the same time, the pros’ long speculation is a drag on the upside because many players have already bought stocks.
Current survey data
Investor sentiment fell back to plus 2.7 points, in November there were still values of up to plus 4.7 points, which was the first sign of euphoria. But this week the good mood got scratches.
The US jobs data last Friday fueled uncertainty again. As a result of the strong job growth and the speech by US Federal Reserve Chairman Jerome Powell on Wednesday evening, there are likely to be only minor interest rate hikes in the US, but for a longer period of time.
Complacency has also fallen off a bit, after 1.5 points in the previous week, the value is now plus 1.1 points. Investors were unsettled throughout 2022, and it was only two weeks ago that something like complacency became apparent for the first time. However, after such a weak year on the stock markets, the survey participants are not really sure of themselves.
And so the future expectations also remain negative with a value of minus 1.0 points. Investors are rather skeptical about the development of the Dax in three months.
At least the willingness to invest remains at a moderate level with plus 1.2 points, as it has been for many months. Investors are ready to invest, but don’t really dare. According to the sentiment expert, many are probably waiting for a pullback to get started.
The Euwax sentiment of the Stuttgart Stock Exchange, where private investors trade, remains at an extremely negative level of minus 13 and reflects the need of investors to protect themselves against falling prices. Because a negative value of this indicator signals a high proportion of put derivatives in the portfolios, which increase in value when prices fall. After the high prices until the end of September and the brilliant rally that followed, this reaction should not come as a surprise.
The institutional investors who hedge themselves via the Frankfurt futures exchange Eurex behave completely differently. The put/call ratio of plus 0.9 shows strong demand from professionals for call options. At the Eurex, one is obviously speculating on rising prices.
Unlike private investors, institutional investors are under pressure to at least achieve a performance similar to that of the market as a whole. Therefore, it cannot be ruled out that the pros missed the bottom of the correction at the end of September and are now looking to improve their performance with the help of leveraged speculation.
US investors are very optimistic
It’s similar in the US. There is a put/call ratio of 0.92 on the Chicago Futures Exchange, which also indicates great investor optimism. US fund investors have slightly increased their investment ratio to 64 percent. This value is again in the lower range of the usual investment rate. In the stock market year 2022, the rate was at a historically low level of between 20 and 40 percent for a long time.
At minus 16 percent, the bull/bear differential for US private investors continues to indicate a bear overhang. 40 percent of US investors are optimistic, only one in four is pessimistic. At 35 percent, the camp of neutrals is larger than it has been for many weeks. The US markets “fear and greed indicator” calculated using technical market data shows moderate greed with a value of 63.
There are two assumptions behind surveys such as the Dax sentiment with more than 7,500 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 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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