The willingness to invest has slipped further.
(Photo: dpa)
Dusseldorf It is an unusual development: the German stock market in the form of the leading index Dax has developed better than the US leading index Dow Jones both over a period of three and twelve months and since the beginning of the year. The Dax is also ahead of the market-wide US index S&P 500.
The mood between German and US investors also diverges. However, it is different from what one might expect: In the USA, investors are significantly more optimistic than in Germany, observes sentiment expert Stephan Heibel. He evaluates the weekly Dax sentiment survey of more than 7,000 private investors for the Handelsblatt and supplements the result with additional indicators.
“The bear has settled in Germany,” says Heibel. The bear is the symbol for a longer-term downtrend on the stock market. If investors expect falling prices, they are therefore “bearish” in stock market language. The opposite is the optimistic bulls.
“After the strong January rally, investors are convinced that a setback must follow,” says Heibel. After all, the Dax has already risen by more than 1700 points this year. After such a steep climb, a pullback would be normal. But many investors fear more than that, reports Heibel: “Many are even discussing a bull trap, suspecting that the bear market of the previous year was only briefly interrupted and will soon continue.”
This is also reflected in the results of the Dax survey by the Handelsblatt: investor sentiment has fallen slightly to 2.2. The mood hasn’t changed yet, but the party mood with a value of 4.3 has vanished.
Complacency has also fallen, from a previous 2.4 to just 0.4. “Obviously, many investors imagined the course of the stock market differently in the past week,” comments Heibel. Although around two-thirds of those surveyed met their expectations completely or to a large extent, the group of those whose expectations were hardly met rose by ten percentage points.
As a result, future expectations also remain negative with a value of minus 0.3. Less than a third of those surveyed expect prices to rise in three months’ time. “The bears have the majority for the second week in a row. Obviously, our survey participants expect prices to continue falling in the coming weeks,” says Heibel.
As a result, the willingness to invest has also slipped further. Just under every fifth wants to buy shares in this or the next few weeks. In the previous week it was one in four. “After 0.9, the current value of 0.2 shows that investors are already sufficiently invested and are more likely to sell.”
“The positioning of German investors is correspondingly negative,” observes Heibel. The Euwax sentiment of the Stuttgart Stock Exchange, for example, has risen slightly, but is still in negative territory at minus twelve. “Private investors are still mostly buying hedging products to protect themselves from a feared setback on the stock markets.”
A negative Euwax Sentiment value means that private investors trading on the Stuttgart Stock Exchange expect prices to fall and are buying more put options than call options. “Puts” increase in value when prices fall, and “calls” are the other way around.
German investors have secured themselves
This negative mood and the existing safeguards work like a kind of safety net for the German stock market, explains Heibel: “I can hardly imagine that a crash can follow based on these pessimistic expectations.” Because put options work practically like short sales. Put simply, this means that if an investor buys a put product on the Dax, the bank has to sell the Dax in the background. And when the derivative is sold, the Dax must be bought back again.
The opposite picture emerges in the USA, says Heibel: “There is more and more optimism there, the bulls have won the majority and are dominating the mood. In the USA, one sees the successes in fighting inflation and interprets the robust labor market to mean that the Fed’s fight against inflation will not have any negative effects on the economy.”
US investors are too bullish
That’s evident on the Chicago futures exchange CBOE, where the ratio of put to call options has fallen to its lowest level in a year. So US investors are bullish and buying call options. In line with this, US fund managers have increased their investment ratio to 85 percent – the highest level since March 2022. And among US private investors, for the first time since March 2022, the group of bulls is larger than that of bears.
Against this background, Heibel currently sees hardly any upside potential for Wall Street: “With so much optimism as we are currently seeing in the USA, it is difficult for the rally to continue. US investors are already too bullish.” If that’s the case, then most investors are already invested and there aren’t any new buyers who can push prices even higher.
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