private-wealth stock market indicator gives buy signal.
In July 2021, the economic indicator - part of the private-wealth stock market model - had given a sell signal. As a result, at a DAX level of around 15,600 points, the model reduced the proposed equity allocation from 110 percent (overweight) to 75 percent (underweight).
Now - after a very volatile start to the year - the private-wealth stock market model is going on the offensive again at a DAX level of around 15,100 points.
We explained the logic of the stock market model to you in detail a month ago (LINK).
As explained, in the model we use the ifo business expectations in German industry as an indicator of the influence of the economy on the stock market. If they deteriorate, this is an indication of an economic downturn with a corresponding negative impact on corporate earnings. If expectations improve, positive impetus from company earnings and rising share prices can be expected in the future. To establish a new trend, expectations must rise three times in succession after a previous downward movement.
A month ago, we informed you that there were signs of a positive turnaround in this regard. Following a sustained decline since March 2021, the ifo Institute had reported an initial, slight increase in business expectations in industry at the end of November. Expectations then improved further in December. The just published business climate for the month of January now delivered the hoped-for turnaround - business expectations in industry rose for the third time in a row.
This has implications for the positioning of the stock market model, which combines three factors - economic indicator, fair value calculation of the DAX and the results of the capital market seismograph.
The long-term corridor for the equity quota in the model is defined by the economic indicator and the editors' internal calculations of the fair value of the DAX.
Assuming that the central banks tolerate more growth and higher inflation rates without significantly raising interest rates - from our point of view this continues to be very plausible - the German DAX share index is currently almost 20 percent below its fair value. Even then, however, the MDAX is still around 30 percent overvalued.
Overall, the valuation of the German stock market is slightly below its fair value. In concrete terms, this means that the valuation indicator is currently slightly positive.
Since the economic component has now also given the green light, the corridor for the equity ratio in the model will now be raised significantly again - from 45 to 75 percent to 75 to 115 percent.
Within the corridor defined in this way, the results of the capital market seismograph will determine the exact positioning. If the seismograph signals an overweight in equities, the private-wealth stock market indicator positions itself in the upper range of the long-term targeted corridor, and vice versa.
Accordingly, we are curious to see how the seismograph assesses the situation. "Currently, we see no evidence of a crash scenario. On the contrary - the probability of negative turbulence remains in the negligible range. The seismograph's recommendation therefore remains: significant overweighting," informs Oliver Schlick, Managing Director of Secaro GmbH, who regularly calculates the seismograph and links it to investment recommendations.
However, a small factor of uncertainty remains: whether the short-term turbulence of the last two trading days will have a lasting impact on the probability landscape remains to be seen. "Soon we will be able to see better how the current turbulences affect the probabilities for the market development of the coming month," informs Oliver Schlick.
The economic component provided a buy signal. Therefore, the corridor for the equity allocation in the private-wealth stock market model is raised to 75 to 115 percent.
Since the seismograph's allocation recommendation is still offensive, a significant increase in the equity allocation toward 115 percent is indicated. Those who are cautious will implement this step gradually and still wait with the significant overweighting of equities until the capital market seismograph confirms a continued positive probability distribution. We will keep you informed.
Note: Despite careful selection of sources, no liability can be assumed 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.