Dusseldorf Investors celebrate on the stock exchange in both Germany and the USA. The German leading index Dax reached a new record high last week, the market-wide US index S&P 500 reached a 52-week high. So much for the similarities.
However, the further investors look into the future, the bigger the differences become: in Germany they are skeptical, while in the USA they believe that prices will continue to rise. This mixed situation harbors the risk of new price setbacks.
This is the result of the Handelsblatt survey Dax-Sentiment among more than 8000 private investors, which Stephan Heibel from the analysis company AnimusX evaluates and supplements with other indicators.
The sentiment expert explains the discrepancy in mood with the different ways in which the topics of artificial intelligence (AI) and China are dealt with. “In the USA, people are enjoying growing independence from China and are now looking to the future with hope with the AI revolution,” says Heibel. “In Germany, on the other hand, people continue to complain about the great dependence on China and don’t really know what to do with the AI revolution.”
For German investors, this is reflected in a discrepancy between current market sentiment and expectations for the future. Due to the Dax record, investor sentiment rose from 3.3 to 3.4 points.
Many investors had expected prices to continue to rise last week. More than two out of three survey participants say that is how they expected the recent price development. This increases self-satisfaction from 1.4 to 1.5 points.
“But you don’t really trust the price increase,” observes Heibel. Although future expectations have risen minimally, they are still negative at minus 2.0 points (previous week: minus 2.2). In three months, only around one in five expects prices to rise.
The willingness to invest is correspondingly low, falling from 0.0 to minus 0.1 points. “Investors want to close positions rather than enter into new ones,” says Heibel.
In the US, on the other hand, investors are much more optimistic. The investment ratio of professional fund managers has fallen from 90 to 82 percent. But it remains at a high level. In addition, there are currently twice as many optimists, called bulls in stock market jargon, as pessimistic bears: 45.2 percent of investors are bullish, only 22.7 percent are bearish.
This is also reflected in the S&P 500’s “Fear and Greed” technical indicator. It has continued to rise, from 78 percent to 83 percent, showing extreme greed in the market. From the point of view of sentiment theory, this is a warning signal because many investors have already invested and only a few potential buyers are left.
AI as course driver
Heibel therefore says: “The great optimism in the USA is dangerous.” Because the price increases are mainly due to the hope that companies will benefit from the further development of AI. This expectation was fueled last week, for example, by good quarterly figures from the software group Adobe.
But the expert warns: “The blessings of AI will not appear on corporate balance sheets as quickly as investors would like. Before this can be the case, investments must first be made. But that doesn’t seem to interest US investors at the moment.” Instead, companies are currently being evaluated according to whether they can benefit from AI in the future – be it through cost savings or through leaps in efficiency.
Falling US markets also hit the Dax
The assessment of investors goes hand in hand with stable prices as long as there are good reports on the stock exchange. But this makes prices susceptible to a pronounced setback, says Heibel: “It doesn’t even take a negative report to initiate consolidation on the US markets. It is enough if there are no further positive reports.”
From his point of view, this also makes the Dax susceptible to a setback: “Since the Dax cannot decouple itself from the development of the US stock market, a setback in the USA should lead to moderate consolidation in Germany. I would suspect the trigger in the USA.”
The pullback is likely to be lower in Germany because the level of hedging is more pronounced here. This can be seen, for example, in the Euwax sentiment of the Stuttgart Stock Exchange, where private investors trade. Here, according to Heibel, the hedging positions were entered into in April when the Dax was at 15,750 points. At the closing price on Friday, that would only be a drop of a good four percent.
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