Keep your nerve.
A month ago, the economic indicator - part of the private-wealth stock market model - had given a buy signal. As a result, at a DAX level of around 15,100 points, the model increased the suggested equity allocation from 75 percent (underweight) to 115 percent (overweight). We explained the logic of the stock market model to you in detail at the time.
The latest results of the ifo Institute on the business climate in February confirm this signal. For the fourth time in a row, business expectations in industry rose. Companies are more optimistic, the order backlog has increased again, but material bottlenecks continue to hamper production, writes the ifo Institute. Interestingly, the Munich researchers' economic traffic light has now also returned to the green zone for the first time since July 2021.
That actually sounds good. But - one important caveat remains. The ifo survey could not, of course, take into account the escalation in Ukraine. It is quite possible that this and the now likely sanctions from the USA and the EU will dampen economic expectations in the future. However, it is not possible to reliably assess whether this will be enough to overturn the positive economic trend that has just been established. After all, in this case the central banks would probably revise their interest rate hike plans and thus provide a certain counterweight.
For the private-wealth stock market indicator, this naturally complicates the situation. If important parameters change abruptly, a long-term economic model is not able to react very quickly.
This makes it all the more important in the current situation to pay attention to the capital market seismograph, which reacts more quickly and sensitively.
As you know, the seismograph combines various economic variables, such as early economic indicators, interest rate developments or price fluctuations on the stock markets. From these, it distills the probabilities for three market states over the next month. Green represents the expectation of a calm, positive market. Yellow denotes the probability for a turbulent positive market. And red indicates the probability of a turbulent-negative market. If this rises significantly, a stock market storm is looming and it's time to get out.
"Although the red probability has increased somewhat in recent days, it is still in an acceptable range at just over ten percent," informs Oliver Schlick, Managing Director of Secaro GmbH, who regularly calculates the seismograph and links it to investment recommendations, concluding, "The seismograph's recommendation therefore remains in place. Significantly overweight equities."
The private-wealth stock market model combines three factors - economic indicator, fair value calculation of the DAX and the results of the capital market seismograph.
The economic component is currently of limited value, as described above. Assuming that the central banks do not raise interest rates significantly - the probability of this scenario increasing if the conflict with Russia has a negative impact on the economy - the German DAX share index is currently below its fair value. The valuation indicator is positive.
As the seismograph's allocation recommendation is also offensive, equity exposure currently remains at 115 percent. However, we will closely monitor the regular recalculations of the capital market seismograph and communicate them to you in a timely manner.
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 informational purposes and is not an invitation to buy or sell securities.