Market sentiment: "Got away with it again"

26 February 2025. FRANKFURT (Goldberg & Goldberg). Stock market players in Germany have not only had to come to terms with the result of the recent German parliamentary elections, even though it is always said that political stock markets have short legs. At the same time, sentiment in the US deteriorated significantly at the end of last week (see, for example, the purchasing managers' index for service providers and consumer sentiment, as well as the recent decline in consumer confidence). Coupled with higher inflation expectations, this led to significant falls in US equities - since our last sentiment survey, we have recorded a drop of around 2.6%. This development is in stark contrast to the Bank of America fund manager survey published last week, in which 82% of respondents were still of the opinion that a global recession was unlikely in the next twelve months!

In comparison, the local DAX fared much better, as the interim loss of 2.9% at the weekend was only followed by a weekly loss of 1.3% as at the reporting date. 
Investors with a medium-term trading horizon surveyed by us probably also contributed to this recovery. Our Börse Frankfurt Sentiment Index recovered by 12 points to a new level of -14.

Setback used

It appears that the interim setback in the DAX was used to close out bearish positions, most of which were probably opened in the previous week. However, some older positions were also covered. In any case, it is remarkable that there has been practically a complete migration from the bears to the neutrally positioned players in the order of 12% of all respondents. In other words: on balance, no one dared to move to the bull side.

We also observed a similar trend among private investors, albeit nowhere near as strong as among institutional investors. The Börse Frankfurt Sentiment Index also rose in this panel, namely by 5 points to a new level of +8, the same level as two weeks ago. The bear camp has decreased by 3 percentage points, and the changes are distributed almost evenly between the bulls and the neutral investors. However, this shift is somewhat overshadowed by the players we survey via social media. While sentiment among other private investors has improved, the positive sentiment among social media investors has bucked the trend and deteriorated at the same time.

Softer underside

All in all, the sentiment gap between private and institutional investors has narrowed with today's survey. In both panels, the temporary setback in the DAX - we expected initial demand between 22,250 and 22,300 points - was apparently used several times to buy back bearish exposures, and in some cases skewed positions were also closed out. The recent DAX rise is therefore probably primarily home-made. At the same time, the group of institutional pessimists has returned to the level of three weeks ago. It is likely that almost all of the remaining bears are old bearish positions whose holders would probably be happy if the stock market barometer were to fall once again (presumably towards 21,700/750 points) in order to cover their short positions.

This results in a deterioration in the demand situation on the downside in the event of a renewed downturn. At the same time, the reduced number of pessimists has reduced the risk of a short squeeze on the upside. In short, the sentiment situation for the DAX has deteriorated somewhat with today's survey, at least from a domestic perspective. However, it remains to be seen whether the inflow of capital flows into the eurozone will continue in order to initiate another DAX rally. Domestic optimists, whose share has remained almost unchanged for four weeks now, are likely to stand in the way for a short time at best. 

by Joachim Goldberg

26 February 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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