• Moritz Eckes

In the year 2019 sowing will take place.

Dear Readers,

it's been a turbulent year. What began in an exuberant mood - economic and profit expectations were massively revised upwards at the beginning of 2018 - now ends in minor. Economists are cutting their growth forecasts, stock prices are falling. Investors look to the New Year with concern.

One of the best leading indicators signaled this trend reversal in good time. In February 2018, the expectation index for the ifo business climate in German industry fell for the third time in succession. The entrepreneurs surveyed by the ifo Institute became more sceptical - and rightly so, as we now know. In conjunction with the very high share prices, this generated a sell signal for the private-wealth stock market indicator ("We are out of here"). Since then the model is only minimally invested. The equity ratio is between zero and 30 percent of the amount earmarked for shares.

They know the logic of the indicator. It should be fully invested when stocks are cheap and the economy improves. And it should not be invested when stocks are expensive and the economy deteriorates. Ten months ago, this was exactly the case.

What's the situation today?

ifo's business expectations continued to decline in December. In industry, the balance among respondents is now negative for the first time since May 2016. This means that more entrepreneurs expect a deterioration than an improvement within six months. At the same time, export expectations are falling. Since the current situation in the industry is still very positive, a correction of the production and investment plans must be expected in the future. The downturn is in progress, and the ifo traffic light continues to be set to "red" (chart). Red traffic light values make a contraction of the economy more likely than an expansion.

It is no wonder that this is causing uncertainty on the stock markets. Meanwhile, however, stock prices are reflecting part of the slowdown. The DAX is now cheaply valued and is trading well below its fair value, which we estimate at 11,000 to 1,500 points. However, the MDAX and SDAX are still clearly overvalued.

Much now depends on how the economy continues to develop. The overwhelming majority of economists expect only a slowdown in growth rates in 2019, but not a recession. In this case, it would soon be interesting to buy shares again. However, if a recession were to occur, the stock markets would still have a lot of room to manoeuvre downwards.

We trust that the Ifo indicator will give a signal in good time if the prospects improve - 9000 entrepreneurs at the helm know best where the wind is blowing from. As long as this is not the case, we remain on the sidelines.

As you know, the 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 probability of a calm, positive stock market ("green, buy or hold") is currently only 28 percent. The probability of a turbulent, volatile market with a positive trend ("yellow") holds at nine percent. The probability for a bear market ("red") is most probable with 63 percent. Therefore, the recommendation continues to be: "Hold the equity quota defensively", states Oliver Schlick, who regularly calculates the seismograph.


In view of the steady decline in business expectations since the end of February, the private-wealth stock market indicator continues to suggest only an equity quota of between zero and 30 percent. However, we are convinced that there will be very lucrative buying opportunities in the course of 2019. On this page we will keep you up to date.

Your 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.