Euphoria in industrials stocks is alarming
|
20 October 2017
Posted in
Special research
The strong economy is driving investor sentiment for the European industrial sector to a two-and-a-half-year high. Investors feel that the industrial sector is profiting from the booming economy. The euphoria which has broken out, however, is an alert.
The sentix sector-sentiment indicator for industrial stocks in Europe marks a new multi-year high. The current value for October revealed that investors have now built up a high optimism for the industry sector. Currently the sector sentiment is the second best of all 19 STOXX 600 sectors. One of the main factors for the euphoria is the investors' perception of the economic situation. Investors attest to the global economy as well as the economy in Euroland a huge strength (see sentix economic indices). As a result, investors conclude that industrial companies are disproportionately benefiting from a booming economy.
sentix sector-sentiment industrials vs. STOXX 600 Index Industrials
However, the current euphoric mood among the investors for the industrial sector is alarming. From statistical analysis of sentix sentiment data series, it can be seen that such extreme values usually have a contrarian effect on the markets. This can also be seen clearly in the sectoral sentiment chart for industrial stocks. In the past, such extremums were often a harbinger for near-correction (see chart). In addition, there is the strong absolute threat to the sector (technically significantly overbought market situation). In the coming months, we therefore expect an increased risk of a correction in the industrial stocks.
