As the economic component of the private wealth stock market indicator reacts very slowly - the data on ifo business expectations is only collected once a month - we rely on the capital market seismograph, which is calculated every four days by Oliver Schlick, Secaro, when the stock market weather situation changes between these dates.

At the end of March, we wrote: ‘At the beginning of April, it will become clear how Donald Trump's ’reciprocal" tariffs are actually organised. We hope that the seismograph will put us in a position to react promptly if the worst comes to the worst."

We have therefore been monitoring the development of the seismograph very closely over the past few days. What is remarkable is that despite the three-day sell-off on the stock markets, the probability landscape remains favourable. The seismograph is not signalling an exit.

As you know, the aim of the seismograph is to warn of large, existentially threatening impacts on the stock markets so that share positions can be reduced in good time. "However, the trick is not to react too sensitively to market fluctuations. As a rule, you are only paying in," explains Oliver Schlick.

In order to arrive at a scientifically sound assessment of the situation, the capital market seismograph distinguishes between three phases depending on the development of various input variables: Green signals a calm environment in which investors can invest in a relaxed manner. Yellow indicates a positively turbulent market with higher fluctuations. Red indicates the probability of negative turbulence. At high values, there is a risk of a significant price collapse. The logic: ‘The lower the probability of negative turbulence, the higher the recommended equity allocation,’ explains Schlick

Currently, the positive probabilities of green and yellow are roughly balanced and still amount to around 90 per cent. Although the probability of negative turbulence has risen in recent weeks, it remains low overall. "So the seismograph is not in panic mode. The start of a real, fundamental crisis, which would lead to a bear market, cannot be deduced from the input factors at the moment,‘ says Oliver Schlick and explains: ’The risk premiums on corporate bonds are only slightly higher, the leading economic indicators are still stable and the yield curves are not extremely conspicuous. Only the higher volatility is shifting the probability - but mainly in the direction of positive turbulence."

Schlick also attributes the crash on the stock markets to the economic uncertainties in connection with US customs policy. He is particularly concerned about Trump's volatile behaviour: ‘Inconsistency creates uncertainty and the markets hate uncertainty - that's what you could read recently,’ says Schlick. Overall, however, this could also mean that the picture could change again at any time. "Then the market will be ten per cent higher and those who got out before will only come back at significantly higher prices. In this respect, the seismograph still encourages calmness at the moment."

The conclusion for investors:

At the end of March, we still thought it was very likely that business expectations in industry - which signal the economic component of the stock market indicator - would improve for the third time in a row in April. In this case, the economic traffic light of the private wealth stock market indicator would have switched from red to green.
In anticipation of this trend reversal, we considered it appropriate to increase the corridor for the equity allocation in two steps from 45 to 75 per cent to 65 to 95 per cent as a precautionary measure.

Trump's tariff hammer has now probably dashed this hope. As things stand today, we have to assume that the mood in the boardrooms will deteriorate again and the economic component of the stock market indicator will remain red. As valuations on the German equity market have improved significantly following the recent price falls - the DAX is now fair again and second-line stocks are significantly undervalued - the model now proposes a corridor for the equity allocation of 55 and 85 per cent of the
individual equity allocation.

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 equity allocation. As this indicator is not currently being swayed by Trump's actions, the specific equity allocation remains at the upper end of the corridor. It has therefore only fallen from 95 to 85 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 42.5 per cent in equities (85 per cent of 50 per cent results in an equity allocation of 42.5 per cent). The cash portion, 7.5 per cent, is available to buy more cheaply in the event of further setbacks.

Sincerely,
Your
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.