Dusseldorf Pessimism about the future is reaching historic highs. Only 16 percent of investors expect the Dax to rise in three months, while almost 40 percent expect prices to fall. This is signaled by the current Handelsblatt survey Dax sentiment.
Sentiment expert Stephan Heibel, who evaluates the weekly Handelsblatt survey, looked at the more extensive data from the analysis company AnimusX, which has been conducting a detailed survey for 16 years. The finding: The value of minus 3.7 for future expectations is the third lowest in AnimusX history. There was not even that much doom and gloom during the corona pandemic.
Only twice in the past sixteen years have investors been more pessimistic about the future than they are today: once in April of last year. A bear market ensued. And once in the summer of 2009. A rally followed.
In 2022, the Dax was 15 percent lower six months later. In 2009, on the other hand, it was 15 percent higher. The developments could not be more contrary. But which course should the leading German index take this time in view of the currently extremely high level of pessimism about the future?
To appreciate that, you have to look at the time before that. In 2009, the Dax emerged from a bear market that lasted from 2007 to March 2009. The first three months of the recovery had not been able to convince investors of its sustainability, and pessimism remained high. Nevertheless, the great financial crisis was solved at that time. A multi-year upswing on the stock markets followed.
Last year, on the other hand, the Dax remained in a bear market that began at the end of 2021 and lasted until September 2022 for a total of ten months. Shortly after the outbreak of war in Ukraine, fears prevailed that there would be no quick end and sentiment plummeted to an all-time low. And indeed, another six months followed with falling prices.
Dramatic sell-off is unlikely
The leading German index has currently passed the low point of the bear market six months ago, the markets are in bull mode. “From this perspective, the comparison with 2009 is more appropriate, so the rally could well continue,” explains Heibel.
However, the correction last year was not as severe as in 2009. In addition, since the September 2023 low, prices have risen more than in June 2009, when investors also no longer wanted to believe that prices would continue to rise.
“Pessimism can be healthy at this point in the rally,” concludes the AnimusX owner. Many global crises are well known and, in his estimation, should not lead to a dramatic sell-off. “It takes a negative surprise to push the stock markets down significantly,” says Heibel.
However, there is also a fly in the ointment. On the other hand, the extremely low willingness to invest makes rising prices seem unlikely. If the Dax is driven further up, then by foreign investors.
A breather is therefore also possible for the sentiment experts, a moderate consolidation. “Therefore, I would interpret the sentiment to mean that moderate price losses in the coming days are more of an opportunity to buy more than a harbinger of a crash,” he explains.
The rally in stock markets took a breather last week. With minor fluctuations, the Dax largely moved sideways. Good quarterly figures were wiped out by renewed fears of a recession.
Current survey data
Sentiment has deteriorated given the sideways movement. Investor sentiment fell to 1.4 points last week. Just a week ago, this indicator was at 3.5 points, almost signaling euphoria that applies from four points upwards.
At the same time, there is uncertainty among investors again, complacency has slipped into the red and is now at minus 0.2. Their concerns are understandable: good company figures do not fit into the picture of recession fears that are reported in many media. In addition, there are now fears about the US debt ceiling.
In line with the extremely negative expectations for the future, the willingness of investors to invest is also lower than it has been for two years. The value is minus 1.2.
The Euwax sentiment of the Stuttgart stock exchange, where private investors trade, has fallen to a value of minus seven. Negative values signal an increasing need for hedging, i.e. a higher proportion of put leverage products on the Dax in private investors’ portfolios. Put products increase in value when prices fall.
So far, only institutional investors have increased their hedging propensity. This is again confirmed by the current put-call ratio of the Frankfurt Eurex with a value of 4.8.
Meanwhile, the put-call ratio of the Chicago futures exchange CBOE shows that US investors are only hedging moderately. Is it just about “the German Angst”? Because US fund investors are also confident – they have increased their investment ratio by 20 percentage points to 78 percent.
The difference between bulls and bears among US private investors shows moderate pessimism with a value of minus eight. The proportion of bears is 35 percent and that of bulls is 27 percent. The US markets “fear and greed indicator” based on technical market data is at 66 percent, signaling moderate greed.
There are two assumptions behind surveys such as the Dax sentiment with more than 8,000 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.
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