22/06/22 14:10:00

Market sentiment: "No Fear of Fear"

Despite the threat of recession, most investors remain calm. Which is deceptive, because Goldberg suspects unrealized losses behind it. 

Around 1,500 points of DAX loss in two weeks, and the local players surveyed remain rather passive. 4 percent each of professionals and private investors are closing their short exposure. The pessimistic economic outlook does not seem to bother them. In the opinion of Joachim Goldberg, this is only a supposed composure. People push away the fear of a recession because of the book losses.

The behavioral economist sees sales by international, long-term investors behind the price losses. Which weighs on the market downward, because the investors surveyed may have to pull the emergency brake in case of further minus. On the upside, on the other hand, even a little good news could give wings. Nevertheless, Goldberg sees this as a possible correction in the bear market.  

22 June 2022. FRANKFURT (Börse Frankfurt). The topic of recession seems to be omnipresent not only in the USA but also in the local media. And indeed, according to media reports, the frequency of the word "recession" in the news has recently jumped to a new annual high. Also, prominent voices from Elon Musk to Nouriel Roubini to Paul Krugman have been speaking out over the past few days, giving the impression that a recession is inevitable. One commentator recently summed it up when he said that Americans are obsessed with the threat of recession. Literally everyone is talking about it.

One can certainly take the view that, in view of the many statements on inflation and recession by well-known economists and analysts, a self-fulfilling prophecy, a kind of fear dynamic, could be emerging. In any case, since our last survey, the DAX has fallen sharply for the second time in a row - this time by 3 percent - in a weekly comparison. In terms of points, this adds up to more than 1,500 DAX points in two weeks.

Here in Germany, the mood remains relaxed

Notwithstanding this, the proportion of optimists among the medium-term institutional investors we surveyed actually increased slightly during this period. Since last Wednesday, our Börse Frankfurt Sentiment Index has risen by 4 points to a new level of +7. This increase is almost exclusively due to former bears (4 percent of all respondents), who have presumably covered their hedges or short positions quite profitably in view of the significant price declines and have joined the neutral players.

We can see a similar development for private investors, whose Börse Frankfurt Sentiment Index increased by 3 points to a new level of +4. In this panel, too, profit-taking by former pessimists contributed by and large to the recent rise in the sentiment barometer, while there was only a minimal decline among bulls.

Serenity has its price

In today's survey, it can be seen that the fear of a recession does not yet seem to have reached the majority of the investors we surveyed, or is being ignored. At first glance, therefore, one might think that these fears are apparently more pronounced among commentators and analysts than among many of the investors we surveyed. However, this apparent composure probably comes at a high price in the form of handsome book losses, in some places in the order of around 10 percent.

On the other hand, despite profit-taking by some domestic institutional investors over the past two weeks, the renewed slump in equity prices suggests that long-term players (including those from abroad) have turned their backs on the eurozone. The slight optimism that can be observed among domestic investors represents a burden for the DAX in that, in the event of further significant price losses, the emergency brake will have to be pulled in some places if one does not want to have too large losses on the books.

On the other hand, in view of the extremely pessimistic news situation, even minor positive reports should ensure relatively significant price recoveries for the DAX. At least the cost prices of the optimists are so far away that their "disruptive supply" would probably not seriously hinder a 5- to 6% rally. However, even then we would probably still only be talking about a normal correction in an overriding bear market.

22 June 2022, © Goldberg & Goldberg for boerse-frankfurt.de

Sentiment index institutional investors

 BullishBearishNeutral
Total39%32%29%

compared to last survey

unchanged-4%

+4%

DAX (Change to last survey): 13.000 (-400 points)
Börse Frankfurt Sentiment index institutional investors: +7 points (Status last survey: +3 points) 

Sentiment index private investors

 BullishBearishNeutral
Total40%36%24%

compared to last survey

-1%

-4%+5%

DAX (Change to last survey): 13.000 (-400 points)
Börse Frankfurt Sentiment index private investors: +4 points (Status last survey: +1 points)

About the Frankfurt Stock Exchange Sentiment Index

The Börse Frankfurt Sentiment Index ranges between -100 (total pessimism) and +100 (total optimism), the transition from positive to negative values marks the neutral line.

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