The ifo Business Climate Index for May continues to point upwards in industry, which is so important for the private wealth stock market indicator. The index for business expectations in the manufacturing sector improved from minus 8.3 points to just minus 5.7. On balance, the number of company bosses who expect a more favourable business trend is now roughly equal to the number of those who anticipate a less favourable trend over the next six months.

This underpins the positive assessment of the private wealth stock market indicator for the German stock market, which has been valid since October. In October 2023, the stock market indicator gave a buy signal when the DAX fell below 15,000 points. The equity allocation was initially raised to 100% at that time due to the stabilisation in business expectations. Since November, the stock market indicator has even been overweight in equities at 110 per cent.

However, part of this positive development has already been reflected in the higher share prices. As a reminder: in addition to the economic trend, the difference between current share prices and the fair value of the DAX calculated by the editorial team is an important criterion for determining the strategic corridor for the equity allocation in the portfolio. We would like to be highly invested in shares if they are favourable in relation to the fair value. And to take profits if the valuation rises significantly above this value. The DAX is currently at just over 110 per cent of its fair value. This is not yet a cause for concern. However, in the event of a further rapid rise in prices to between 19,000 and 20,000 points, the private wealth stock market indicator would slightly reduce the strategic corridor for the equity allocation from the current 70 to 110 per cent to 60 to 100 per cent.

The conclusion for equity investors:

All three components of the private-wealth stock market indicator continue to look good. The economic indicator has been ‘green’ since November 2023. The current market valuation of the DAX relative to its long-term calculated value is still acceptable. The strategic corridor for the equity allocation in the private wealth stock market indicator therefore remains at 70 to 110 per cent of the individually planned equity allocation.

Within this range, the results of the capital market seismograph determine the exact positioning of the stock market indicator. As you know, the seismograph combines various variables - leading economic indicators, interest rate trends and price fluctuations on the stock markets. The probabilities for three market states in the coming month are distilled from this. 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. In this case, abstinence from equity investments is the order of the day.
The probability landscape of the seismograph has been stable positive for some time. ‘The probabilities for a positive, calm market continue to dominate, while the probability of negative turbulence remains negligible,’ says Oliver Schlick, Secaro: ‘The seismograph therefore considers an offensive equity positioning to be advisable.’

Overall, the equity allocation of the private wealth stock market indicator therefore remains at the upper end of the strategic corridor at 110 per cent of the individually planned equity allocation. This means that anyone who, for example, considers an equity allocation of 50 per cent to be optimal based on their individual preferences in the strategic asset allocation should currently be 55 per cent invested in equities (110 per cent of 50 per cent results in an equity allocation of 55 per cent).

Yours sincerely,
Klaus Meitinger

Note: Despite careful selection of sources, no liability can be accepted for the accuracy of the content. The information provided on the private wealth website is for information purposes only and does not constitute an invitation to buy or sell securities.