Capital market seismograph becomes more positive, economic outlook remains critical
"The probability distribution of future stock market developments has just fundamentally changed. We are still a long way from the positive figures that prevailed until autumn 2018. But the sharp decline in the probability of negative turbulence suggests an increase in the equity quota," analyses 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).
In January, the probability of a bear market (red) had risen to over 80 percent. In the last ten days, this has then been significantly reduced. Today it is only 47 percent. The probability of a calm, positive stock market ("green, buy or hold") reaches 46 percent again. The probability of a turbulent, volatile market with a positive trend ("yellow") is 7 percent.
"Some important input variables for our model indicate an all-clear," explains Schlick. The Fed's announcement of an end to the cycle of interest rate hikes has reassured investors and led to a significant decline in volatilities. At the same time, risk premiums for corporate bonds also declined. "Both increased the probability of quiet markets at present," says Schlick.
However, complete warnings cannot yet be given at all. "The global growth outlook is simply too weak to expect a return to the stable positive investment trend of 2017," Schlick cautions.
This fundamental skepticism is supported by the data on the global economic climate currently published by the Munich-based ifo Institute. The economic researchers survey more than 1000 experts from 122 countries on a quarterly basis. The result: economic expectations crashed in the last three quarters and are now as negative as at the beginning of the financial crisis. Overall, the global economy is only a tiny step away from the recession quadrant of the ifo economic clock (chart).
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, economic risks have gradually intensified. For this reason, the indicator 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. As this has recently improved, a 20 percent equity weighting now seems appropriate.
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.