The publication of the ifo Business Climate for the month of November has led to almost unison negative comments. "Worries about a cooling of the global economy", "Corona blues". Indeed, the ifo business cycle clock (chart below left) is ticking swiftly through the cooling quadrant and is now approaching crisis territory alarmingly. The ifo economic traffic light (chart below right) also remains "deep red". In plain language: the ifo Institute now rates the probability of a cyclical phase of expansion at close to zero percent.

That does not look good. But there are also two glimmers of hope. First, export expectations have risen slightly again. Above all, however, business expectations in industry have risen slightly again for the first time after a seven-month decline. The automobile industry in particular is apparently breathing a sigh of relief and expects growth in its foreign business.

This is important information for the private-wealth stock market indicator. After all, industry expectations are one of three indicators that determine the stock ratio of the model. It combines the analysis of the long-term fair value of the DAX with an economic component derived via the ifo climate and the tactical positioning of the capital market seismograph.

The massive decline in the economic component meant that the equity weighting of the model had to be significantly reduced in July. Another improvement in December would be seen as a strong indication that the German economy is putting the fourth-quarter 2021 dip behind it. And it would be a signal to increase the equity allocation again. That's because the valuation component of the model remains neutral and the third factor - the capital market seismograph - has been consistently very positive for 18 months.

"Despite the worsening of the pandemic situation in Europe, the probabilities of the seismograph have actually hardly changed," informs Oliver Schlick, Managing Director of Secaro GmbH, who regularly calculates the seismograph and links it to investment recommendations. The probability for a calm positive market development (green) and a positive turbulent market (yellow) is cumulatively above 99 percent. The probability for a turbulent negative market (red) does not matter. "This is not an environment where a major correction would be expected," Schlick says.

Our conclusion: the equity weighting suggested by the private-wealth stock market indicator had been lowered in July to 75 percent of the capital allocated to equities. The model still maintains this weighting at present. One reason for this is that when the current ifo data were collected, the Corona situation was nowhere near as dramatic as it is today. It could therefore well be that expectations in the industrial sector turn downward again in December. We are therefore waiting to see whether a new trend actually establishes itself. Only then would the model become more offensive again.

Stay healthy,

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.