Markets

Market sentiment: “Same topics, different reactions”

The past reporting week has shown again that the majority of the hoped-for price declines in the DAX have remained manageable. A 3 percent weakness spell in the past week was almost completely made up for temporarily.

October 21, 2020. FRANKFURT (Frankfurt Stock Exchange). By and large, it is the same topics as in our last survey of sentiment that have been occupying the equity markets in this country in the last few days. The coverage of the upcoming US elections on November 3rd played a rather subordinate role. The interplay between hope and disenchantment over the question of whether the negotiations on the US stimulus package will ultimately lead to an agreement had a stronger influence on trade. And recently, the gap between Republicans on the one hand and Democrats including US President Donald Trump on the other hand was not even close in terms of the size of the stimulus package. Negotiations that even in this country have supposedly influenced trade since last Wednesday.

Covid 19 risks so far put away well

Meanwhile, it was noteworthy that the dramatic development of the Covid 19 infection numbers in this country has not really had a negative impact on the stock market barometer. The risk of a renewed lockdown in this country alone should have had a greater impact on the market, at least in the opinion of the overwhelming opinion of the commentators. Instead, the DAX has experienced a setback of around 3 percent since our previous survey, but then recovered with a similarly significant amount and then surrendered these interim gains to this day.

The latest development of the Börse Frankfurt Sentiment Index, which rose by 9 points to a level of -4, shows that the medium-term oriented institutional investors we surveyed did not really allow themselves to be chased. As we described last week, this resulted in partial coverage of a small group of former pessimists, but also in purchases in the weakness of previously neutral actors. Probably less from a fundamental point of view, but in the hope of a renewed recovery of the DAX on the same scale as last week.

Risk-averse private investors

The opposite is the trend among private investors, who, as is well known, had been more optimistic than their institutional counterparts in the past week. Probably with success, because the Frankfurt Stock Exchange Sentiment Index for this panel has fallen by 12 points to a level of -12. This is not just the third consecutive decline in the index. Rather, the group of new pessimists is composed in equal parts of former optimists (profit-taking and change of position) and formerly neutral actors (presumably repositioning at a higher level during the past trading days).

On balance, a mood gap has opened up again between institutional and private investors, although it is not yet clear which of the repositioning will ultimately prove to be successful. If the current sideways movement continues, both parties may. It is true that institutional investors did not appear in large numbers as buyers in the falling market. But it is still apparent that at the time of the survey the DAX is at the lower end of the trading range of around 3 percent since the previous survey. In short: the demand did not help the stock market barometer.

Although there is still a slight pessimism to be seen among institutional investors in absolute terms, the situation can still be described as relatively optimistic over the next three or six months. This optimism can by no means be called great, but it could nevertheless be a burden for the DAX. Especially since the small group of new optimists would react very quickly to price gains with profit-taking (presumably between 12,900 and 12,950 points) and to any further price declines probably only hesitantly. So far, the corrective downward trend in the DAX has never proven to be sustainable over the past six months.

October 21, 2020, © Goldberg & Goldberg for boerse-frankfurt.de

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