Markets

Market sentiment: “Optimists have seen enough”

Professional investors follow suit and take profits with them. Not a bad prerequisite for further price gains from a behavioral point of view.

October 14, 2020. FRANKFURT (Frankfurt Stock Exchange). Since our last opinion poll, issues from the USA, initially the economic stimulus package that has not yet materialized, and later the opinion polls on the outcome of the elections have dominated the stock markets on both sides of the Atlantic. And in the end, the opinion prevailed in many places that the Democratic presidential candidate, Joe Biden, should have increased his lead over the incumbent President Donald Trump in the polls. Yes, there was even talk of a possible landslide victory for the Democrats in some places, and this prospect also boosted share prices in this country. Meanwhile, Bank of America’s latest fund manager poll as of October 8th showed that 61 percent of those polled expect the US election result to be challenged.

Of course, the sometimes significant increases in Covid-19 infections in Europe also played an important role for the commentators. Especially since the topic of a lockdown of whatever type flared up again and again and the fund managers of the aforementioned survey see the development of the Covid-19 situation as the greatest extreme risk for the financial markets. Alone: ​​The stock market participants have so far reacted only hesitantly to such news with a very manageable setback. In fact, for the DAX, for example, there was a plus of 1.0 percent on a weekly basis.

Mood landslide

There has now also been a kind of landslide in the mood of the institutional and medium-term investors we surveyed. Because the optimism from the previous week has suddenly disappeared and has turned into pessimism: Our Börse Frankfurt Sentiment Index fell by 24 points to a level of -13. This is the strongest dip in sentiment since February 12, a week before the previous all-time high before the start of the Corona crisis. Most of the former optimists behind it turned their position by 180 ° and switched to hedging or short positions. However, it was not only a newly emerging risk aversion (Covid-19, US elections) that was decisive for this sudden change in position. The profits accumulated through the positioning of the past weeks were also gladly realized.

There was also another profit-taking among private investors, but the Frankfurt Stock Exchange Sentiment Index of this panel fell by just 5 points and is now exactly on the neutral zero line. However, it should not be forgotten that the private investors – in contrast to their institutional counterparts – had already seen a significant decline in the sentiment index the week before.

DAX defies domestic sales

All in all, the trend in sentiment is remarkable, especially among institutional investors. In contrast to domestic investors, there was a tendency in the opposite direction among the international fund managers whom Bank of America recently surveyed. Not only because the cash quota had fallen to 4.4 percent (previous month: 4.8 percent). On balance, 27 percent (September 18 percent) of those surveyed also stated that they were overweighted in equities; The overweight position in equities in the eurozone also increased by a few points to 26 percent. However, these values ​​do not indicate a dangerously good mood.

It is also noticeable that the DAX practically did not suffer from the share sales by domestic investors. Possibly because the flow of international capital on the other side was not interrupted. This is good news for the DAX, as at least some of today’s new bears may want to cover their commitments again in the 12,700 / 12,750 range. If there is a setback of this magnitude at all. The chances of a continuation of last week’s rally are at least as good.

October 14, 2020, © Goldberg & Goldberg for boerse-frankfurt.de

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