Dear Readers,

The downward trend in the ifo business climate has stopped, the Munich economic researchers write. In fact, the overall index remained unchanged for the first time in May after five consecutive declines. However, this is not a signal for an all-clear. Because the most important component - the expectations directed towards the future - continue to fall;

In the manufacturing sector - which has always been an indicator for the trend in the global economy due to its heavy reliance on exports - expectations continue to decline almost unchecked (the blue line in the chart below indicates expectations).

Overall, the ifo economic clock (chart below) thus still remains in the boom quadrant. But the discomfort grows. This is also supported by the ifo traffic light, which remains in the "red" zone;

For your information, the ifo traffic light shows the monthly probability of an expansive phase of the economy. Green traffic light values signal probabilities of more than two thirds and thus indicate expansion. Red traffic light values stand for expansion probabilities of less than one third - they make contraction more likely.

In fact, a six-fold decline in business expectations since 1969 - as long as the ifo Institute conducts this survey - has occurred only 13 times. This was followed nine times by a more or less severe recession, i.e. several quarters of negative growth or zero growth. Growth slowed down three times. Only in the winter of 2014 did the ifo indicator quickly reverse its upward trend and the economy continued to grow. So the risk that we are witnessing the start of an economic downturn remains high. Reason enough to remain very cautious about equity investments.

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 results are interesting: In recent days, the probability of a quiet, positive stock market ("green") has risen somewhat further from 91 to 93 percent. The probability of a turbulent, volatile market with a positive trend ("yellow") fell from 2 to 1 percent. And the probability of a bear market ("red") fell from 7 to 6 percent. "From this point of view, the situation remains clearly positive," comments Schlick.

Conclusion:

In view of the steady and massive 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, it is advisable to position oneself closer to the 30 percent at present and to take short-term risks with a slowed down foam.

yours

Klaus Meitinger

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.