The mood on the stock market is bad. But the Dax chart doesn’t reflect that. wrong world? No. The mood on the stock market can’t be bad enough.
Admittedly, none of this is logical. Bad sentiment supposed to be good for stock markets? And very good mood, in turn, is a warning sign? That doesn’t make any sense at first. But that’s exactly how it is.
Sure, actually our mood should be good, better dazzling. Then we feel good. In the financial markets, however, it is exactly the other way around. The mood on the stock market can’t be bad enough. There, the current mood is a fairly reliable counter-indicator. The word “current” is important. Investors’ medium to long-term assessment of what’s going on in the markets should be good. It’s not a contra indicator.
When panic occurs, prices usually turn
But in the short term it is different. It can be observed again and again that the mood on the markets suddenly changes when it was previously very extreme. When fear and panic prevail in the crash, when everyone is in an extremely bad mood and very pessimistic, then prices often turn around quite quickly. Is it because all the pessimists have long since sold and couldn’t throw more papers onto the market? If the mood is downright bad, then the sell-off has usually already taken place. The recovery is on.
The stock market expert
Jessica Schwarzer is a financial journalist, bestselling author and long-time observer of global stock market activity. German equity culture is a matter close to her heart. Last is her latest book “Why Anyone Can Get Rich Relaxed” appeared. At t-online she writes about investments and financial trends that complement a broadly diversified basic financial investment. You can reach her on LinkedIn, Twitter, Facebook and Instagram.
The phenomenon can also be observed the other way around: if the mood is great, investors are euphoric, maybe even greedy, then that is also a warning signal. It’s often the end of the stock market party. At least one correction is pending, sometimes it takes longer. Extreme euphoria can even lead to a crash.
Which helps with the nervousness
And currently? The mood is bad. This is shown by so-called sentiment surveys among German investors. This is also shown by international data such as the “Bull & Bear” index from Bank of America Merrill Lynch. Despite this, the stock exchanges are holding up fairly robustly? Crazy, right? But not entirely surprising. A little bit of positive news should be enough to get prices breaking out. Nevertheless, the nervousness is also great. So what to do? It always depends on your investment horizon.
Because the daily ups and downs in prices and the mood swings of investors do not have to influence you as a long-term investor or even drive you crazy. If you have an investment horizon of many years, maybe even decades, and invest in funds or ETFs with broad risk diversification, then you can easily ride out interim turbulence. You can also confidently let your savings plans on globally investing funds or on ETFs on indices such as the industrialized countries index MSCI World or the real world index MSCI All Country World run.
However, it is important to know how we should interpret reports of very good or very bad moods. Because then the supposedly illogical fluctuations will no longer surprise us so much. It’s easier for us to keep our nerves. And maybe you even use your knowledge and boldly buy more? True to the old stock market adage of Warren Buffett, “Be greedy when everyone is fearful. Be fearful when everyone is greedy.” Because he too knows only too well that investors do not always act logically in the short term. On the contrary.
