2019 begins in crisis mode
"the monthly comparison of the probabilities of the capital market seismograph reflects a crisis situation on the stock markets," informs Oliver Schlick, who recalculates the capital market seismograph every four days.
As you know, the capital market seismograph 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).
Last month, the likelihood of a bear market (red) had risen continuously from 47 percent to 81 percent. The probability of a calm, positive stock market ("green, buy or hold") is only 10 percent. The probability of a turbulent, volatile market with a positive trend ("yellow") holds at 9 percent. (graphic attached)
"Fundamental correlations are currently developing very unfavorably," explains Schlick. The leading indicators for global economic growth have been trending downwards for some time now. The yield curve in the USA is now very flat and points to a further slowdown in growth. The continuing rise in risk premiums in the corporate bond market signals that corporate stress is increasing. Price fluctuations on the stock markets are increasing massively. And also in the US bond market, according to Schlick, there were indications that the caution of market participants is increasing. "Yields on five-year bonds are unusually low compared with ten-year bonds. This phenomenon is an indication that the majority of market participants are buying medium-term - a sign of "increasing risk aversion". All this together has led to the seismograph today suggesting a zero equity quota. "Our simulations also show that the likelihood of a bear market will remain high even if volatility in the markets calms down," explains Schlick, concluding: "2019 will be a difficult year for investors for some time to come. Stay careful".
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 of a bear market is very high, the private-wealth stock market indicator remains on the sidelines.
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.