Market sentiment: "Impact hit"

28 January 2025. FRANKFURT (Goldberg & Goldberg).  It was Monday and it was time for DeepSeek. The AI model of a Chinese start-up caused an uproar on the stock markets, and yes, there was even talk of a stock market quake in some places. All of a sudden, the USA's technology leadership seemed to be in danger. There was talk of a sell-off in American and European technology shares. Today, just over 48 hours later, the danger seems to have been averted for the time being, and there can be no question of contagion to local stock markets. In fact, the stock market has reacted comparatively cool, as the stock market barometer - from last week's all-time high - temporarily lost just two percent in value and not only made up this loss by this morning, but even presented a new all-time high. In a weekly comparison, we recorded a gain of 1.2 percent. And in retrospect, some experts even went so far as to claim that DeepSeek's appearance and the associated temporary significant setback may have scared many stock market participants, but ultimately also offered a favorable buying opportunity.

A mixture of fear and caution

However, if we look at the results of today's sentiment survey among institutional investors with a medium-term trading horizon, it is fair to say that recent events have had an impact. Although our Börse Frankfurt Sentiment Index only fell by 5 points to a new level of -12, the change among investors with a neutral attitude is remarkable. This group has grown enormously and now accounts for a record-breaking 48% of all respondents. On the one hand, this is because pessimists have presumably closed out their positions as a result of the aforementioned setback - after all, they account for 12% of all respondents. However, the bull camp has shrunk even more in favor of neutral investors; we are talking about 17% of all respondents. This means that the group of optimists now only makes up 20% of the panel, the lowest level since May 31, 2023.

Among private investors, on the other hand, we hardly noticed any changes, as the Börse Frankfurt Sentiment Index rose by 2 points to a new level of +14 in this panel. Ultimately, there was only a slight net shift of one percentage point from the bears to the bulls. Those surveyed via social media have moved only slightly compared to the previous week, while the other investors have switched from the bear to the bull side to an overwhelming extent. In contrast to their institutional counterparts, there has been no urge to move to the sidelines.

Not ready for a rally

With today's survey, the sentiment gap between private and institutional investors has widened again slightly. If there were no important events coming up with the meeting of the Federal Open Market Committee of the US Federal Reserve (ends tonight) or the meeting of the European Central Bank tomorrow, the strong tendency of institutional investors towards the sidelines could be seen as a fear reaction to recent events (DeepSeek, but also Donald Trump's tariff threats). In any case, there has been no major run to the bulls following the setback at the beginning of the week. It is therefore quite possible that it was mainly long-term investors from abroad who were responsible for the DAX's recent recovery.

Apart from the almost record-high proportion of neutral institutional investors and the associated strong risk aversion, this does not mean that a longer sideways movement is the most likely scenario. It is the clear asymmetry between bulls and bears that is benefiting the DAX. While we therefore expect initial demand on the downside between 20,950 and 20,990 points, the upside is comparatively open. In other words: 80 percent of those surveyed would not really be ready for a direct and rapid rally in the DAX. 

By Joachim Goldberg

28 January 2025, © Goldberg & Goldberg für boerse-frankfurt.de

The Börse Frankfurt 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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