Market sentiment: “Amazingly robust”

5 February 2025. FRANKFURT (Goldberg & Goldberg). How similar the pictures of the past two sentiment weeks are! In the middle of last week, the stock markets had barely come to terms with the uproar surrounding the AI model of a Chinese start-up called DeepSeek when the DAX managed to set three new all-time highs. Then it was Monday once again, and this time it was the tariffs announced by US President Donald Trump for Mexico, Canada and China at the weekend that sent the DAX south - in the meantime, it lost 2.5%, slightly more than at the beginning of the previous week.

The stock markets now appear to have calmed down for the time being with regard to Trump's decisions, although the planned tariffs for Mexico and Canada have by no means been lifted, but their entry into force has merely been postponed by one month. For many market participants, this may have been tantamount to mentally discounting a loss, along the lines of: the main thing is not to pay today, but only in the future. Some commentators even called Donald Trump's bluff. Although the new tariffs for China have not yet been postponed and the extent of the expected tariff measure for Europe has not even been determined yet. At least the stock market barometer managed to make up some ground, but a weekly loss of 0.4 percent remains since last Wednesday.

Clear opinion

Meanwhile, it was hardly to be expected that the majority of institutional investors with a medium-term trading horizon that we surveyed last week (48% of all respondents) would adopt a neutral stance for some time to come. And indeed, the group of neutral investors lost more than half of its members in today's survey. However, because these 27% of all respondents were almost evenly split between bulls and bears, our Börse Frankfurt Sentiment Index fell by just one point compared to the previous week, albeit for the third time in a row. In other words, today's survey revealed a strong polarization between bulls and bears.

Meanwhile, a clear shift in opinion is emerging among private investors. The Börse Frankfurt Sentiment Index in this panel fell significantly by 19 points to a new level of -5. This sharp change in sentiment is primarily due to the private investors surveyed via social media, many of whom have turned their opinion 180 degrees from bullish to bearish - an unusual constellation, as this subgroup has normally been much more optimistic than the other private investors for months. In the end, the entire panel showed a pessimistic attitude on balance for the first time since April 2024.

Trapped in the corridor 

With today's survey, private and institutional investors have moved closer together again in terms of sentiment, meaning that the sentiment gap has narrowed considerably. The recent high polarization between bulls and bears among institutional investors represents a clear but balanced positioning. Commitments that ensure that the DAX is to a certain extent “locked in”, albeit within a broad range. On the downside, we continue to expect initial demand from the bears due to profit-taking in the 20,950/990 DAX point range, while on the other side we expect the bulls to make their first major bid between 22,100 and 22,150.

Looking at the bottom line, however, the pessimism of institutional investors is at its lowest level this year with a Börse Frankfurt Sentiment Index of -13, but it is still manageable and could well have been higher in view of the impending trade imbroglio with the USA. From a sentiment perspective alone, however, the DAX situation has not deteriorated. 

By Joachim Goldberg

5 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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• Explanation of the method