Market sentiment: “Keep it up!”

8 January 2025. FRANKFURT (Goldberg & Goldberg). Our last sentiment survey was conducted three weeks ago and the event risks that have arisen since then, including a meeting of the US Federal Reserve before Christmas, are likely to have been absorbed by stock market participants in Germany by now. This meeting of the Fed's Open Market Committee was remarkable in that its members were much more cautious than before in their forecasts (the so-called dot plots) for further interest rate cuts in 2025. Incidentally, the minutes of that meeting are due to be published this evening (CET). At the same time, instead of the Christmas rally expected in some quarters, there was presumably a sharp setback for the DAX, which at times reached a level of 3.1%.

At least the pessimists, who recently formed the majority among the institutional investors with a medium-term trading horizon that we surveyed, may have gotten their money's worth. It is possible that their buybacks at the end of the year prevented worse. In addition, the DAX experienced a renewed upward surge of around 2.5% at the start of the new year, meaning that the past three weeks ended with a gain of 0.6%. 

Back to zero, but no new start in terms of positioning

Looking at the results of today's sentiment survey among institutional investors, however, there is only a tiny change in our Börse Frankfurt Sentiment Index, which has strengthened by one point to a new level of -3. As if the survey participants wanted to signal: “Keep it up!” On closer inspection, however, it can be seen that the polarization between bulls and bears has decreased significantly. The bear camp has shrunk by 5 percentage points compared to the previous survey, a fact that suggests profit-taking in this group. However, the optimist group has also shrunk by 4 percentage points, although the changes among bulls and bears may not have occurred at the same time. The fact that the clocks were reset in many places at the turn of the year, i.e. accumulated profits and losses were mentally written off, may also have played a role.

The bottom line for private investors has also changed very little compared to the previous survey, with our Börse Frankfurt Sentiment Index for this panel shrinking by one point to a new level of +3. 

Opposing activities

However, a very clear, albeit opposing, shift can be seen among the investors we survey via social media and other private investors. The latter showed a clear tendency away from the bear camp towards the bulls, which suggests that there has been considerable profit-taking and position changes from bearish to bullish. In the best-case scenario, these latest investments are already profitable. The private investors surveyed via social media have probably not fared so well, as they have almost completely offset the profitable performance of other private investors.

The bottom line is that the sentiment gap between private and institutional investors has narrowed somewhat with today's survey. It should be noted that many institutional investors adjusted the purchase prices of their positions at the end of the year, while private investors naturally did not have to take this step.

As a result, the DAX has started the new year relatively unencumbered and, in case of doubt, is experiencing somewhat more support on the downside in the form of demand from the remaining bears, while the supply on the upside is somewhat lower due to possible profit-taking by bulls. On balance, things look positive for the stock market barometer, albeit with only slight advantages.

from Joachim Goldberg

8 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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