Market sentiment: "Uncoupled"

12 March 2025. FRANKFURT (Goldberg & Goldberg). During the past sentiment week, the DAX again outperformed the major US indices S&P 500 and Nasdaq. Not only because the DAX was able to shine at the beginning with a new all-time high. The latter probably also benefited from the growth hopes that were raised among investors by the special funds of EUR 500 billion earmarked for repairs and infrastructure in Germany and the easing of the debt brake for defense spending. The DAX also weathered the subsequent crash in share prices, which was primarily caused by the USA and the confusion surrounding trade tariffs, comparatively well: While we in Germany (after a slump of around 5.2%) only recorded a drop of 1.5% as at the reporting date, the aforementioned indices lost several times as much value over the same period - the DAX has therefore decoupled itself from the US indices. 

Stop loss drawn

At the same time, there has been a significant change in sentiment among the institutional investors we surveyed with a medium-term trading horizon. Our Börse Frankfurt Sentiment Index has risen by 21 points to a new level of +7. Not least because the bull camp has increased by 12 percentage points. Three quarters of this increase is attributable to former bears who have turned their position 180° from short to long. The remaining quarter of the new optimists are made up of previously neutral players. Taking into account the price performance of the past few days, at least some of the former pessimists are likely to have been involved in last Monday's squeeze, together with long-term capital inflows.

However, the situation among private investors is different. The Börse Frankfurt Sentiment Index fell by 4 points to a new level of +4 in this panel. The bottom line is that a small proportion (on balance 2 percent of all respondents) have turned their position from bullish directly to bearish, whereby the majority of this change is attributable to investors who we did not survey via social media. If we take into account that those we surveyed via social media are even slightly more bullish compared to the previous week, the remaining investors must be even more pessimistic compared to the previous week than the pure change in the sentiment index suggests. In other words, many players from this sub-group have maintained their bearish commitments. 

Less demand 

With today's survey, the sentiment gap between private and institutional investors has almost completely disappeared. This is particularly due to the fact that the latter have reduced their bearish exposure to a greater extent, with the sentiment index in this panel reaching +7, its highest level since November 27 of the previous year. Of course, sentiment is far from being on the positive side, even when viewed in relative terms over three and six months. However, this significant change in sentiment means that major imbalances from the previous weeks have presumably been corrected. As a result, demand on the downside now appears to have thinned out, at least from a domestic perspective. At the same time, the supply situation on the upside, just above the previous all-time high, has probably strengthened for the first time in the 23,400/450 points range. The bottom line is therefore a scenario in which the sentiment situation of the DAX has deteriorated - with the possibility of significant corrections on the downside in the absence of further long-term capital inflows from abroad. 

by Joachim Goldberg

12 March 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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