Panic is palpable on the markets

Dusseldorf In the current market phase, panic among investors is particularly noticeable. Panic of escalating inflation, of a recession, of a long war in Ukraine, of a renewed tightening of the lockdown in China.

This is also shown by the current data from the Handelsblatt survey Dax-Sentiment. Investors are very unsettled, with the majority expecting prices to fall over the next three months.

Such values ​​are not surprising after a Dax weekly minus of 4.8 percent. That was a real crash. The recent decisions of the central banks caused the crash. The later the central banks tighten the monetary policy reins, the harder they have to pull on them. Investors fear that monetary policy might eventually run out.

But for sentiment expert Stephan Heibel, it was often a good idea to buy into fear and panic. “If a counter-movement takes place, you can always judge later whether the fear is justified (…) and get out again if necessary,” he explains. The sentiment survey has been around since autumn 2014. There was only one occasion when it would have been wrong to enter the market when prices had fallen like this – in the middle of the corona crash.

In the past, such a violent slump in sentiment as in the past week was always followed by a significant countermovement of two to four percent within the following two weeks. Only in March 2020, during the corona crash, was a Dax slump of twelve percent followed by a week with minus three percent and then a minus of 20 percent.

But the corona crash was something unknown for which there was no solution at the time. According to Heibel, the current crash was caused by wrong decisions: an ECB that was too hesitant, a US Federal Reserve that was too hesitant and a climate policy that is harmful to many sectors of the economy in the current market phase. There are solutions for that. The only thing missing is the support of the population to take such unpopular steps. “In my opinion, however, a sell-out like in the corona crash is currently not to be feared,” says Heibel.

If the central banks remain hesitant, an end to inflation can only be achieved by restraint in purchasing due to the excessively high prices, which would also trigger a severe recession.

In his opinion, market forces are currently being overlooked: With Target, the first US retailer has announced that it will sell its excessive inventory at a discount. “Perhaps we will see further signs in the coming weeks that the market is getting inflation under control even without the central bank,” explains the owner of the analysis company Animusx.

The main driver of inflation is the high price of oil. But a green policy in Europe and the USA prevents any investment in the expansion of oil production, says Heibel. The heads of the central banks, both Jerome Powell in the USA and Christine Lagarde in Europe, do not see the drama of this development. On the contrary: Lagarde again confirmed on Thursday that only green investments would be permitted in Europe.

Current survey data

Investor sentiment fell from plus 0.2 in the previous week to minus 5.8. The last time there was a comparably severe slump in sentiment was last November, when the stock markets had reached their all-time high and began to plummet.

Investors are very unsettled, the survey shows a value of minus 6.4 on this point, after the uncertainty seemed to have briefly disappeared in the previous week. The future expectations are still dominated by pessimists, they have fallen to minus 1.0. “We have to go back more than a year to find a similarly large bear overhang,” explains the sentiment expert.

Oddly enough, the willingness to invest remains stable at a moderate level with a value of plus 1.3. This leaves two possibilities: either the current sell-off is seen as another opportunity, or many investors have positioned themselves “short”, meaning they want to benefit from a crash.

The Euwax sentiment of the Stuttgart Stock Exchange, where private investors trade, slipped to minus ten last week, but is currently only trading at minus 6.5. The greater the minus in this indicator, the higher the proportion of put products in the portfolios, with which one profits from falling prices. Investors have therefore secured themselves in good time before the sell-off at the end of last week.

Institutional investors are very different from private investors. The Eurex put/call ratio, which professionals use to hedge themselves, shows an average level of hedging purchases at a value of 1.3. In the USA, too, the put/call ratio of the Chicago futures exchange shows a declining hedging behavior.

For the third week in a row, US fund managers have increased their previously extremely low investment ratio – last week from 34 percent to 50 percent. Maybe that was too early.

The bull/bear ratio for US private investors is down 26 percent, and the bears regained momentum last week. At 47 percent, the proportion of pessimists is twice as high as that of optimists, called bulls. And the US markets’ “fear and greed indicator” based on technical market data shows moderate fear at 28 percent.

There are two assumptions behind surveys such as the Dax sentiment with more than 7000 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.

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