Dear Readers,

In February, the ifo business climate made up for the dip in January. The positive development in industry, which is also decisive for the private wealth stock market indicator, was particularly impressive. The assessment of the situation there has now returned to the level of summer 2019 - so the Corona slump has been more than made up for. And business expectations are also pointing upwards again.

This is good news for equity investors. Of course, risks remain in connection with the effectiveness of the vaccines and a possible third wave. But should these not materialise, the most likely scenario of an economic boom in the second half of 2020 and the first half of 2021 outlined in previous issues here remains intact.

The capital market seismograph also supports this positive picture. It regularly forecasts the probability of three market states in the coming month. Green" means that a calm market with a positive trend is expected. Investors can invest with peace of mind. "Yellow" indicates a turbulent market with positive expectation - investing is fine, but one should be prepared for volatile times. And "red" signals a turbulent market with negative expectation. The advice then is not to invest.

Last week, the green probability for calm, rising markets continued to rise towards 40 per cent. Yellow still dominates and the probability of negative turbulence remains insignificantly low. "The recommendation remains: Significantly overweight," summarises Oliver Schlick, who as managing director of Secaro GmbH calculates the probabilities and links them to investment recommendations.

Conclusion:

As the Ifo economic indicator is positive and the seismograph suggests an overweighting is advisable, the private-wealth stock market indicator continues to recommend a high equity allocation.

We pointed out a month ago that the concrete shape of the equity weighting depends on whether the narrative of an economic boom and significantly rising corporate earnings combined with persistently low interest rates remains valid. The importance of this discussion was shown in the last few days, when fears of inflation and related interest rates depressed share prices. After Fed Chairman Powell allayed fears that the US central bank might change its expansionary course in the foreseeable future, the market calmed down again. 

This underlines how important it is to keep this point in mind when it comes to investment strategy. We therefore presented the further development of the stock market indicator to you a month ago.

Specifically, we calculate two scenarios for you. In the first case, to which we ourselves currently attach a greater probability, the assumption is that the "zero interest rate era" of the major central banks will continue for a long time (we assume ten years for the calculation). Nevertheless, corporate earnings rise in line with the trend of recent years. Then the private-wealth stock market indicator would advise an equity quota in the corridor between 90 and 120 percent of the capital earmarked for equity investments. And since the seismograph considers an overweighting sensible, the concrete equity quota of the stock market indicator would be 110 percent.

Those who believe in the "old" world, in which interest rates rise with the economy, must be more cautious in view of the high valuation on the markets. In this case, an equity quota of 90 percent of the capital earmarked for equities is currently indicated. 

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 informational purposes and is not an invitation to buy or sell securities.