Investor sentiment has deteriorated for the fourth consecutive week.
(Photo: dpa)
Dusseldorf The German stock market has been moving sideways since the beginning of April, and the leading index Dax has remained in a trading range of around 400 points since then. But the Frankfurt stock exchange barometer could soon break out of this range, says Stephan Heibel, managing director of the analysis company AnimusX and publisher of the market letter “Heibel-Ticker”.
He derives this assessment from the Handelsblatt survey “Dax-Sentiment” among more than 8,000 private investors and from the evaluation of other indicators. The weekly survey starts every Friday morning and ends on Sunday afternoon.
Heibel currently considers two scenarios for the further development of the Dax to be possible, both of which are related to the political dispute over raising the national debt ceiling in the USA. In the worst case, this could culminate in the temporary insolvency of the United States.
The first scenario would be an escalation of the dispute. Should the Dax fall below the psychologically important mark of 15,500 points as a result, according to Heibel, “a rapid and violent downward movement” could follow: “I’m assuming a few turbulent weeks ahead of us.”
Ultimately, however, new buyers could see the falling prices as a buying opportunity and trigger a rapid countermovement to the upside. “The long sideways movement has built up a certain tension potential that should lead to a violent movement,” explains the expert. “But the great pessimism among investors should then prevent the downward trend from stabilizing.”
This is based on the following idea: if the mood on the market is bad, this is a sign that the majority of investors are expecting prices to fall and have prepared for this scenario. And the mood is currently deteriorating, as the survey by the Handelsblatt shows.
mood worsens
Accordingly, investor sentiment (sentiment) has fallen for the fourth week in a row and has now reached zero. “The good mood resulting from the recovery rally that has been going on since last autumn is evaporating,” observes Heibel.
The complacency that slowly built up after the difficult year 2022 on the stock markets has also evaporated. “The value of minus 1.1 percent shows that uncertainty among investors is spreading again,” says Heibel.
The future expectations of the survey participants have clouded over significantly, the value has fallen to minus 3.3 percent. If you exclude the phase surrounding the bankruptcy of the Silicon Valley bank in April – with the ensuing fears of a global banking crisis – this is the lowest value since Donald Trump won the US presidential election in 2017. “Optimists have been around since less than a year ago among German investors,” states Heibel.
The willingness to invest has fallen accordingly. At minus 1.0 percent, it is – excluding the bankruptcy of the Silicon Valley Bank – at its lowest level for a year. Since the sentiment survey began in 2014, there have only been five times lower readings.
This great skepticism was already evident on the futures market. Here, both private and institutional investors have put options to protect against falling prices, reports Heibel: “Now we are waiting for the developments on the stock markets.”
Should prices fall as a result of the escalation of the debt dispute, these safeguards would take effect and stabilize prices. In principle, the put options work like bets on falling prices: Put simply, the bank has to sell the Dax in the background if an investor buys a put product on the Dax. When the derivative is sold, the bank has to buy back the Dax. If many hedges are redeemed, this stabilizes the prices.
According to Heibel, this situation would be the entry opportunity. In addition to the debt dispute, there are also high inflation, concerns about rising interest rates, fears of recession, the war in Ukraine and the US-China conflict as further negative factors, but there are positive developments everywhere. “The crises are now moving towards solutions rather than escalation,” says Heibel.
Agreement would have the potential to surprise
The second scenario that Heibel considers possible in the context of the US debt dispute would be even more optimistic for the Dax. “Should there be a surprising agreement in the debt dispute, the Dax could break out,” says the sentiment expert. “The pessimistic investors would be misplaced and forced to chase prices, which would only fuel the rally.”
Heibel therefore advises investors to invest moderately. They would definitely be there in the event of a breakout of the current trading range to the upside. At the same time, they would have enough cash to collect bargains in the event of a sale.
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.
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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