According to the Munich-based ifo Institute, the downward trend in the manufacturing sector did not continue in October. Although company bosses once again assessed current business as worse, their expectations were less pessimistic.

This is the first step on the road to a better future. As a reminder: according to the diction of economic researchers, it takes three consecutive increases in business expectations to establish a new positive trend. However, it will take some time until then. If Donald Trump wins the US election, there is a high probability that expectations will deteriorate again.
The economic component of the private wealth stock market indicator therefore remains ‘red’ for the time being.
A particularly interesting constellation could emerge for the shares of small, cyclical companies. In view of the poor business situation, turnover and earnings expectations were reduced in series in the reports for the third quarter. As a rule, the share prices of the companies concerned then fell significantly. In some cases, extremely low valuation levels have now been reached - always assuming, of course, that these companies will be able to return to their usual sales and earnings path in a new upturn.
There could be great opportunities for investors in precisely this area. The prerequisite would be a victory for Kamala Harris in the US election and at least a further increase in ifo business expectations in the industry. For now, however, patience is still required.

The bottom line for investors:

The economy, specifically the business expectations of German industry, and the market valuation of the DAX define the strategic corridor for the equity allocation of the private wealth stock market indicator.
As the economic component is set to ‘red’ and the German stock market is trading slightly above its ‘fair value’, this range lies between 45 and 75 per cent of the individually planned equity allocation. Should the DAX climb above 20,000 points in the coming weeks, the analysis of the fair value would suggest a further reduction in the strategic range.

Within this corridor, the capital market seismograph - the third component in the private wealth stock market indicator alongside the economy and valuation - defines the exact positioning. The probability landscape of the seismograph has been very positive for a long time. This has not changed recently. This is why the equity allocation in the private wealth stock market indicator remains at the upper end of the strategic corridor at 75 per cent.

An example: For investors who consider an equity allocation of 50 per cent to be optimal in the strategic allocation of their assets, the model would suggest investing only 37.5 per cent in equities at present (75 per cent of 50 per cent results in an equity allocation of 37.5 per cent). The cash portion, 12.5 per cent, is available to buy more cheaply in the event of any setbacks.

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 stock market indicator is for information purposes only and does not constitute an invitation to buy or sell securities.