Market sentiment: “Like a frog in a boiling pot”

23 July 2025. FRANKFURT (Goldberg & Goldberg). News about President Donald Trump continues to dominate discussions among analysts and strategists on the financial markets. One key topic was certainly the future of Fed Chairman Jerome Powell, whose dismissal was feared in many quarters last week. But the US president reiterated that he had no intention whatsoever of doing so. Even though Trump and his Treasury Secretary Bessent (see his interview with CNBC last Monday) may want to overhaul the entire US Federal Reserve, this did not seem to really worry stock market traders. The fear that Powell's dismissal could trigger a shockwave on the financial markets never really seemed to materialize. And we can now gradually get used to the idea of a restructuring of the Fed, which will probably also include the loss of its independence.

The whole thing is reminiscent of the parable of the frog in the pot (also known as the “boiling frog syndrome”), which, when thrown into boiling water, immediately jumps out again. However, if the poor animal is placed in cold water and the water is heated slowly, the frog gradually adapts to the rising temperature, with the result that it makes no attempt to escape and ultimately perishes miserably. In other words, habituation effects seem to lull market participants into a false sense of security before they realize the true end of the story. As a result, the DAX ended up gaining 0.8 percent in value compared to the previous sentiment survey, a price gain that may also be attributable to the recent tariff deal between the US and Japan.

Unlucky bears

The past week of sentiment was anything but smooth, especially for the pessimists, who are clearly in the majority. The stock market barometer initially rose by 1.7 percent before experiencing a significant decline. At least our Frankfurt Stock Exchange Sentiment Index rose by 15 points to a new level of -15. This is because the bull camp grew by 9 percentage points. Two-thirds of this comes from former pessimists who have turned their bearish positions around 180° to bullish – the further bullish growth is fed by players who were previously neutral. The bottom line is that only around 35 percent of the bearish positions taken in the previous week have been reversed.

Meanwhile, sentiment among private investors has deteriorated further: Our Frankfurt Stock Exchange Sentiment Index fell by another 3 points to a new level of -9. The driving force here came from previously neutral investors, the majority of whom joined the pessimists. The group of neutral investors is once again at its lowest level of the year, accounting for only 15 percent of all respondents.

Slump in sentiment

Noteworthy: Optimism has declined particularly among private investors whom we survey via social media. Normally, this group is much more bullish than the other investors in this panel.

Today's survey shows that the gap in sentiment between private and institutional investors has narrowed significantly, mainly because the latter were very bearish last week. Even though their sentiment has improved, it should be noted that almost two-thirds of last week's pessimists have stuck to their commitments despite recent performance setbacks. This means that the downside of the DAX is likely to remain well supported in the 23,750/800 range in the event of further setbacks, especially if the remaining short positions/hedges are closed out again. On the other hand, the risk of a short squeeze in the event of a significant rise in the DAX has decreased somewhat, as has the number of pessimists who would have to chase the market with further losses in this case. In other words, the situation for the DAX does not appear to be unfavorable.
 

by Joachim Goldberg

23 July 2025, © Goldberg & Goldberg for boerse-frankfurt.de

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

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