The willingness to invest has slipped further.
(Photo: dpa)
Dusseldorf The most recent breather on the stock market has left its mark both in Germany and in the USA. This is shown by the Handelsblatt survey Dax-Sentiment and the US survey American Association of Individual Investors (AAII). The weekly minus for the leading German index Dax and the market-wide US index S&P 500 was only around 1.7 percent.
For the sentiment expert Stephan Heibel, this development is a good basis for further price increases. In the past, it often proved to be an entry opportunity when, as in the previous week, a moderate pause in prices was followed by a significant slump in sentiment. “Many investors with weak nerves have left the market,” he explains. “It leaves the more level-headed investors who aren’t so quick to sell their positions.”
This current rapid slump in mood is astonishing in view of the stock market development: the Dax has gained more than 25 percent since the end of September and almost ten percent since the turn of the year. Nevertheless, a weekly minus of 1.7 percent was enough for sentiment to fall to its lowest level for the entire year.
The mood slump even showed signs of panic. But this is more of a positive sign, as a stock exchange rule shows: prices rise on a wall full of doubts (“wall of worry”). Because when there is great fear of price losses in the market, investors with weak nerves sell quickly. And when they’ve done that, the worries don’t have to go away. It is often enough that there is no more negative news, and the market rises again – as it did on Monday.
The reason for the current fear of price losses is also likely to be related to the memories of the bear market of the previous year, when the Dax was 25 percent down in the meantime.
Of course, there was a series of economic reports that suggest further interest rate hikes and thus fuel the risk of recession. This danger is real and, following the stock market rally of the past few months, is no longer fully priced into the stock market. “Depending on the news situation, the pressure on the courses can continue, but a rushing away is rather unlikely given the already quite negative mood,” says sentiment expert Heibel.
Current survey data
Investor sentiment has fallen to its worst level since the beginning of the year at minus 0.3 points. In the previous week, this value was 1.4 percent.
The uncertainty among investors can also be measured again: the indicator for complacency shows minus 1.9, after plus 0.9 in the previous week. This value has also slipped into the red for the first time since the beginning of the year.
Expectations for the future often rise when prices fall. But not so this week: The value of minus 0.5 shows the emerging skepticism that investors have with regard to future stock market developments. It almost seems that the falling prices are dashed hopes of a continuation of the rally.
The willingness to invest has also fallen to plus 0.4 after plus 1.1 in the previous week. This is the second lowest value in a year.
The Euwax sentiment of private investors remains at a moderately negative level with a value of minus 7.5. Investors continue to hedge against price losses. A negative value shows that there are more put leverage products, which increase in value when prices fall, in private portfolios than call leverage products, which are used to bet on higher prices.
The put/call ratio of the Frankfurt futures exchange Eurex, through which institutional investors hedge themselves, shows only a relatively low hedging tendency at a value of 1.5.
The put/call ratio of the Chicago derivatives exchange CBOE, on the other hand, has risen slightly, and US investors are becoming more cautious again. US fund investors are also becoming more cautious and have drastically reduced their investment quota to 57 percent. In the previous week, this value was still 81 percent.
The bull/bear spread for US retail investors has slipped back into the red. The proportion of pessimists, called bears, is 39 percent. On the other hand, 22 percent of respondents are bullish. It’s a sharp shift in sentiment that US investors have experienced over the past week. As recently as last week, the proportion of bulls was five percentage points higher than that of bears.
The “Fear & Greed Indicator” of the US markets, which is calculated using technical market data, is hovering in neutral territory. Other more short-term technical indicators have slipped significantly and are on the verge of signaling an oversold market and a move north.
Great optimism in the oil market
An interesting constellation is the oil market, which has different rules than the stock market. While optimism tends to be considered a drag on stock prices, such benign sentiment has always led to higher oil prices. According to data from the analysis company Animusx, there have been 17 times in the past few years such high expectations for the future as they are now. Each time, the price of oil rose sharply in the six months that followed, by an average of 38.5 percent.
There are two assumptions behind surveys such as the Dax sentiment with more than 7,800 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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