Market sentiment: "Optimists have the upper hand"

25 September 2024. FRANKFURT (Goldberg & Goldberg). We were right: the optimists in our last sentiment survey have been confirmed in their assessment - even if the positive price momentum for the DAX came primarily from abroad. First and foremost, the new all-time high can be seen as a consequence of the jumbo interest rate cut of 50 basis points decided by the US Federal Reserve last Wednesday. This was coupled with the hope of many stock market participants that another interest rate cut of this magnitude could possibly follow this year.

Meanwhile, recently published economic data in Germany, such as the disappointing preliminary purchasing managers' indices (also for the eurozone), were disappointing. However, investors have already become accustomed to poor economic data and, in the worst-case scenario, negative trends in this regard have been reinterpreted as a harbinger of further interest rate cuts by the ECB, which is seen as support for rising stock markets according to conventional logic. As a result, the DAX - as measured by our last sentiment survey - was able to gain almost 1.7% in value at times. However, despite reaching a new all-time high above 19,000 points, the DAX has slightly run out of steam and another attempt to gain momentum at this point has so far failed. 

Hardly any profit-taking among the bulls

Meanwhile, sentiment among the institutional investors we surveyed with a medium-term trading horizon has deteriorated somewhat compared to the previous week, as our Börse Frankfurt Sentiment Index has fallen by 5 points to a new level of -1. However, the bottom line is that there was practically no profit-taking. Rather, the 5 percentage point increase in the bear camp is due almost exclusively to previously neutral investors. This group has thus fallen to its third-lowest level this year.

Among private investors, however, there was a further improvement in sentiment, which is reflected in a 4-point increase in the Börse Frankfurt Sentiment Index to 23 points in this panel. On balance, 2% of all respondents turned from bearish to bullish. However, this small change in sentiment only occurred among the private investors we surveyed via social media. By contrast, sentiment among other investors - similar to that of institutional investors - deteriorated slightly compared to the previous week. 

Strong contrast in opinion

The gap in the sentiment indices between private and institutional investors has also widened. Both panels show that optimists have not yet taken any major profits despite the DAX reaching a new all-time high. Obviously, the optimists' accumulated book profits are not large enough to close out their positions. In fact, the DAX has only risen by 1.1% week-on-week since our last survey. On the other hand, the previous highs were apparently attractive enough to bring previously neutral institutional investors over to the bear side - presumably above 19,000 DAX points.

In the end, there remains a clear polarization between bulls and bears, each with a share of more than 40% of respondents. While the pessimists' positions are likely to show slight losses on average, the situation looks better for the optimists. As the latter are likely to have accumulated book profits on average, we now expect them to be realized at around 19,200/250 DAX points; supply that is likely to stand in the way of a further upward trend, at least temporarily. Overall, however, the sentiment situation has not deteriorated compared to the previous week. Especially as many pessimists on the downside are waiting to emerge from their lopsided positions with their skins halfway intact. This means initial demand in the area around 18,600/650 points. 

By Joachim Goldberg

25 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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