Seismograph gives a thunderstorm warning.
We have just received the new estimate of the team around Oliver Schlick, who regularly calculates the capital market seismograph. Since our last report to you, the likelihood of negative turbulence has quickly built up, although the absolute level remains within bounds. The speed at which thick black clouds form in order to remain in the seismograph's image is more of a concern here. "This is problematic and must be taken seriously," says Oliver Schlick and continues: "The seismograph's new positioning is defensive weighting."
On the brink of recession
The mood on the German executive floors is becoming uncomfortable, writes the ifo Institute. In fact, the ifo business climate continued to decline in July. In industry, which we regard as a sentiment indicator for the global economy and the stock markets, the business climate indicator is even in free fall. Especially the export suffers (graphic 1).
The seismograph points to a turbulent but positive market development.
We have just received the new estimate of the team around Oliver Schlick, who regularly calculates the capital market seismograph. As you know, it distinguishes between three phases: "green" (quiet market = buy), "yellow" (turbulent market with positive expectation = invest, but with hedge) and "red" (turbulent market with negative expectation = do not invest).
Currently, the probability of a calm, positive stock market ("green, buy or hold") is only 27 percent. However, the probability of a turbulent, volatile market with a positive trend ("yellow") has risen to 34 percent. The probability of negative turbulence reaches 39 percent. "Of particular interest is the increase in the probability of positive-turbulent markets. In particular, the significant decline in money market rates due to the ECB's and the FED's tendency to lower interest rates made a major contribution to this. Overall, the probability of "favorable" markets thus rises by more than 60 percent," explains Oliver Schlick and concludes: "Despite the continuing weak fundamental economic data, a comparatively high equity ratio is derived from the seismograph's values. But expect strong fluctuations."
The private-wealth stock market indicator has been out of the stock market since the end of February 2018. This was triggered by the three-fold decline in ifo business expectations in the industry and the simultaneous very high valuation of the stock markets. Since then, the indicator has proposed a minimum weighting of equities of 0 - 30 percent of the individually planned equity component.
For the short-term positioning within this corridor we use the results of the capital market seismograph. Since the probability for a bear market is below 40 percent, the proposed equity ratio remains at 25 percent.
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 information purposes only and does not constitute an invitation to buy or sell securities.
No improvement in sight.
In June, the ifo business climate fell further to its lowest level since November 2014. In industry, which we regard as a sentiment indicator for the global economy and the stock markets, pessimism increased again after a brief improvement in sentiment in May. As in recent months, favourable assessments in the service sector and in construction are still supporting the overall climate. However, industry is already in recession today and is ensuring that the ifo traffic light remains on red (chart below).
The ifo traffic light indicates the monthly probability of an expansive economic development. Red traffic light values mean: The probability of expansion is less than one third. This points to a contraction of the economy in the future.