In the capital markets, things sometimes do not go as they seem logical at first glance. In the past few days, news from the banking sector unsettled investors. Actually, the bank quake represents a new, additional risk factor for the stock markets, which - so the assumption - could also increase the probability of thunderstorms on the capital market seismograph.
At the same time, however, yields on US five-year government bonds fell because market participants expect that the interest rate peak in this cycle could now be reached earlier than previously expected in view of the stress in the financial sector. "As US yields have an important influence on the probability distribution on the seismograph, this caused a significant increase in the "yellow" probability at the expense of "red". On balance, the situation with the seismograph has thus actually improved somewhat," explains Oliver Schlick, who translates the signals of the seismograph into allocation proposals for Secaro GmbH.

As you know, the seismograph combines various economic variables - early economic indicators, interest rate developments or price fluctuations on the stock markets. From these, the probabilities for three market states in the next month are distilled. Green stands for the expectation of a calm, positive market. If green dominates, investors should invest in shares. Yellow indicates the probability of a turbulent positive market - investing, but with a sense of proportion. And red indicates the probability of a turbulent-negative market. Then abstinence from equity investments is the order of the day

For quite some time, the red probability had clearly dominated with values between 80 and 95 percent. Yellow and green hardly played a role. In recent weeks, the red probability has now gradually declined towards two-thirds - and "yellow" has risen to the same extent.
"Actually, this is a positive development. But I still have to point out that the situation remains uncertain," says Schlick: "If, for example, the banking crisis were to worsen, this would be a real problem for the markets. If, on the other hand, the situation in the financial sector were to ease, interest rates are also likely to rise again and the switch from red to yellow could quickly be revised again."
In this constellation - uncertain situation, rise of "yellow" with continued dominance of the "red" probability - Schlick advises to remain on guard, but to loosen the defensive a bit: "It is still too early for the all-clear. Nevertheless, the overall constellation of indicators now only suggests a slight underweight for equities. The data from the seismograph justify increasing the equity quota somewhat."

The bottom line:

The economic traffic light of the private-wealth stock market indicator is green and the valuation of the German stock market is still below its fair value. Therefore, the stock market indicator currently defines a strategic corridor for equity investments between 65 and 95 per cent of the individually intended equity share.
Within this range, we are guided by the results of the capital market seismograph. Because the seismograph is currently only slightly underweighted, the equity quota suggested by the private wealth stock market indicator is gradually moving towards the middle of the strategic corridor. Specifically, the ratio is increasing from 74 to 77 percent of the individually envisaged equity share.
This reference to the individually envisaged equity share is important to us. Models such as the private-wealth stock market indicator can only ever be based on economic data. How high the individual share quota should be in times of war must be decided by each investor on the basis of his or her own risk appetite and risk-bearing capacity.

Yours sincerely,

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.