Market sentiment: "Rosy Prospects"

18 September 2024. FRANKFURT (Goldberg & Goldberg). Here in Germany, too, the attention of stock market participants has been focused primarily on the US Federal Reserve, which is expected to cut interest rates at the Federal Open Market Committee meeting that ends tonight (CEST). But it is astonishing how expectations about the scale of this move have changed since our last sentiment survey. While the probability of a major interest rate cut of 50 basis points priced into the futures markets was still below 20 percent a week ago, it has now risen to over 60 percent. This is not because the economic data published during this period would have necessitated such a shift. Rather, changes in the views of commentators and the media over the past weekend have apparently led to a reassessment in many places. However: At the time of today's survey, it was unclear whether the rate cut would be 25 or 50 basis points. And yes, the DAX has gained 2.1% since last Wednesday.

Also for fear of missing out

Not least because there was increased optimism among the institutional investors with a medium-term trading horizon that we surveyed, which manifested itself in the form of an 8-point increase in our Börse Frankfurt Sentiment Index to a new level of +4. The increase of 7 percentage points in the bull camp is largely due to previously neutral investors - only a very small percentage is attributable to previously bearish investors who have now given up in the face of the DAX rise. Despite the upcoming US Federal Reserve meeting, some investors have already made up their minds, perhaps also out of fear of missing out on a further DAX rise.

On the other hand, private investors have also become more optimistic. The Börse Frankfurt Sentiment Index of this panel has risen by 17 points to a new level of +19. This optimism is not only (typically) supported by the private investors surveyed via social media. The positive sentiment is also due to the other investors, who have turned bearish positions 180° directly to “bullish” for the second time in a row to a similar extent as in the previous week (8% of respondents).

Not only domestic demand is decisive

As sentiment among private investors has turned much more positive than among their institutional counterparts, the sentiment gap between the two panels has also widened. It can be assumed that the new domestic optimists have contributed in no small measure to the rise in the DAX compared to the previous week. And those who made the most of it were even able to post a weekly gain of 3.2% at times. 
However, it was probably not only domestic investors who contributed to the rise in the stock market barometer. The Bank of America survey of international fund managers published yesterday showed that eurozone equities have risen in favor again compared to August. 8 percent of those surveyed stated that they were overweight in this region.

The bottom line is that the majority of institutional investors are optimistic, as we last recorded on August 7. This also applies to sentiment in a three- and six-month comparison. Obviously, the outcome of today's meeting of the Federal Open Market Committee of the US Federal Reserve, including the new interest rate forecasts, the so-called dot plots, seems to be of secondary importance for the new optimists in particular. Otherwise we would probably have registered a more cautious mood. On the other hand, today's optimism is not so high as to pose a major threat to the DAX. However, profit-taking on the upside could stand in the way of stronger upward momentum (presumably primarily just above 19,000 points). 

By Joachim Goldberg

18 September, 2024, © 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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