ifo Indicator of Economic Sentiment continues to decline.
The ifo business climate in July did not bring a turnaround. The most important component for us - the industry's expectations for the future - has now declined eight times in a row.
The fact that the ifo economic clock is still in the boom quadrant is due to the historically high values at the beginning of the year. Step by step, however, this indicator is now moving in the direction of the downturn. For the fifth month in a row, the ifo traffic light has also been set to "red". Red traffic light values make a contraction of the economy more likely than an expansion.
As long as there is no turnaround in business expectations, we must continue to assume that we are currently experiencing the beginning of an economic downturn. It is therefore still advisable to remain very cautious when investing in equities.
However, there are also two silver stripes on the horizon. After seven consecutive declines, industrial export expectations rose again for the first time in July. Interestingly, this result came before the Juncker-Trump meeting raised hopes that the world's two largest economies would engage in constructive negotiations to dismantle trade barriers rather than continue to threaten each other with tariffs and counter-tariffs.
If the situation in the trade conflict does indeed ease, a much more optimistic outlook for the German economy can certainly be developed. Capacity utilization is comparatively high at 87.7 percent. Actually, the industry should be investing now. But the entrepreneurs are still understandably holding back. If this knot is broken, the economic outlook could quickly improve again. The data on business expectations collected as part of the ifo survey will provide an indication of this;
Parallel to the publication of the ifo business climate for you, we also checked the capital market seismograph of the team led by Professor Dr. Rudi Zagst and Oliver Schlick. We hope that this indicator will provide us with indications of the direction of short-term fluctuations around the long-term trend, which is determined by the ifo data.
As you know, the capital market seismograph distinguishes between three phases: "green" (quiet market = buy), "yellow" (turbulent market with positive expectation = invest, but with hedge) and "red" (turbulent market with negative expectation = do not invest).
The seismograph has been showing a relaxed picture for quite some time now. The probability of a calm, positive stock market ("green") remains very high at 90 percent. The probability of a turbulent, volatile market with a positive trend ("yellow") holds at 2 percent. And the probability of a bear market ("red") is a low 8 percent;
In view of the steady decline in business expectations since the end of February, the private-wealth stock market indicator only suggests an equity quota of between zero and 30 percent. In view of the positive indications of the capital market seismograph, however, it is appropriate to position itself closer to the 30 percent;
A risk for investors remains in this situation. Should the outlook quickly improve again - we had outlined the logic above - the ifo indicator would probably only give a new buy signal very late. After all, this would require a threefold increase. We'll keep an eye on that for you,
Note: Despite careful selection of sources, no liability can be accepted for the accuracy of the content. The information provided in private wealth is for information purposes only and does not constitute an invitation to buy or sell securities.