Market sentiment: “Rising too fast”

7 May 2025 FRANKFURT (Goldberg & Goldberg). Over the past few days, the DAX has continued its impressive upward trajectory, at times posting gains of over 26% since the low following US Liberation Day on 7 April. Since our last sentiment survey alone, the index has gained 3.1%, the fourth weekly gain in a row. There were just two setbacks during the reporting period, but these are likely to have caused a shrug of the shoulders rather than serious concern among many players.

Of course, the US Federal Open Market Committee is due to meet in the US today, and it is widely expected that there will be no change in the key interest rate. Much more important for some players is therefore likely to be how US President Donald Trump will react to the highly probable “non-event”. However, most people are probably already used to his tirades against Fed Chairman Jerome Powell. The same applies to the trade tariffs still to be imposed by the US, which are likely to be lower than the original extreme demands than originally feared. In the perception of financial market participants, this even feels like a relative gain.

Tempting all-time high

However, the institutional investors we surveyed with a medium-term trading horizon behaved quite differently overall. Our Börse Frankfurt Sentiment Index fell by 22 points compared to the previous week to a new level of -8. It is not certain whether the increase of 12 percentage points in the bear camp is due to the election of Friedrich Merz as Chancellor yesterday, which was met with obstacles. On balance, the majority of all those willing to switch have turned their position 180° from bullish to bearish, while not even a fifth were previously neutral investors. The DAX's proximity to its all-time high may have served as a reference point for selling, as did the fact that the stock market barometer may have risen too quickly for many investors.

Surprisingly little has changed among private investors, whose Börse Frankfurt Sentiment Index has risen by one point compared to the previous week to a new level of +23. The fact that the bear camp fell by one percentage point on balance is not due to private investors, whom we surveyed via social media, but to minor shifts in the positions of the other panel participants. In the end, it became clear once again today that those belonging to this subgroup have tended to take a long-term view for several weeks now.

Proper cashing in

The bottom line is that sentiment among institutional investors has suffered so significantly for the second time in a row that the distribution of bulls and bears is now practically at the same level as three weeks ago. There are more than 2000 DAX points between these two surveys as at the reporting date, which is likely to have benefited many optimists. Today's result also makes it clear that for many players the impressive DAX recovery is now coming to an end: For a small bearish majority, the risks now lie on the downside.

On the other hand, it must be noted that the DAX has hardly suffered from the recent sell-off by domestic investors, possibly because long-term capital flows, including from abroad, are likely to have ensured good demand on the other side. It can also be assumed that the pessimists of today will again act as buyers in the event of corresponding setbacks (presumably for the first time at 22,550/600 DAX points) and have not really turned their backs on the DAX. All in all, this is not a bad starting point for the DAX.

by Joachim Goldberg

07. May 2025, © Goldberg & Goldberg for boerse-frankfurt.de

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

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