It may have been a mixture of risk aversion and trend fatigue that led to a marked shift in investor sentiment towards pessimism.
Although the DAX has marked a new high since last Wednesday in the course of its rally that began at the end of September, this was apparently not significant enough to keep the recently bullish majority of stock market participants in line. The mood has turned among both institutional and private investors, so that this development towards pessimism could be understood as a rejection of a year-end rally. However, Joachim Goldberg suspects that a continuation of the upward trend at the end of the year should not yet be completely written off, despite the skepticism that has recently emerged among many players.
7 December 2022. FRANKFURT (Börse Frankfurt). Although the DAX was unable to continue its series of price gains as of the reporting date for our respective sentiment surveys, it nevertheless proved to be quite robust at times. Since our last survey, the stock market barometer was able to generate a small gain of just under 1.1% at its peak. This was completely given away again during this week, but with a minus of 0.6 percent (in the point comparison), the most recent price loss is still within narrow limits. The range traded during this period of a good 2 percent could also still be described as comparatively manageable. Especially since the Fed and ECB meetings are still scheduled for the coming week. In this context, the attention of the players is primarily focused on the U.S. Federal Reserve, in many places associated with the expectation that at least the pace of interest rate increases will be curbed.
If we now look at the results of today's sentiment survey among investors with a medium-term orientation, we cannot speak of optimistic players. Because our stock exchange Frankfurt Sentiment index collapsed by 24 points to a new level of -21. In many cases, new entrants among the optimists from the previous week have turned the tide and ensured that the group of bulls has shrunk by more than a third to its lowest level since August 17. The vast majority of these investors went straight back to the bear side. Presumably not only because the upward trend of the DAX has recently shown technical signs of fatigue.
Fear of unpleasant surprises
A similar change in sentiment is emerging among private investors. In this panel, the Börse Frankfurt Sentiment Index falls by 14 points to a new level of -1, so that nothing remains of the optimism of the previous week. However, the share of optimists who are willing to change (these go almost entirely to the bears) with 6% of all respondents is nowhere near as large as in the institutional counterparts.
Now, one could of course argue that, in view of the recent highs reached in the course of the DAX rally that began at the end of September, there has been profit-taking by the optimists in both panels. However, the interim weekly gain since our last survey has not exactly been significant. The fact that many of the former bulls - despite the fact that the stock market year is drawing to a close - have moved directly to the bear side is probably due to the fear that there could still be unpleasant surprises in the coming weeks, for example on the part of the US Federal Reserve. This fear seems to carry more weight than the concern of possibly missing out on a year-end rally.
Return against risk premium possible
With today's survey, the sentiment gap between institutional and private investors has widened again, but the trend in both panels points in the direction of caution. At best, it is surprising that the stock market barometer has not suffered more strongly so far in view of this recent pessimism, which has flared up again in some cases. This can be taken as an indication that the stock markets are still supported by demand from long-term capital flows. It can also be assumed that, in view of the approaching holidays, the recent pessimists will cover their commitments again, especially if the latest fears turn out to be unfounded. Above all, however, if the DAX should actually deliver a major correction (about just below the level of 14,000 points), so that then at least a decent risk premium would be earned. Today's sentiment result thus at least ensures a stabilization of the stock market barometer at a lower level and thus an increased chance of a year-end rally after all.
7 December 2022, © Goldberg & Goldberg für boerse-frankfurt.de
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Bullish | Bearish | Neutral | |
Total | 25% | 46% | 29% |
compared to last survey | -13% | +11% | +2% |
DAX (Change from previous survey): 14.350 (-80 points)
Börse Frankfurt Sentiment-Index Institutional investors: -21 points (Status past survey: +3 points)
Bullish | Bearish | Neutral | |
Total | 38% | 39% | 23% |
compared to last survey | -6% | +7% | -1% |
DAX (Change from previous survey): 14.350 (-80 points)
Börse Frankfurt Sentiment-Index private investors: -1 points (Status past survey: +12 points)
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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