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Tactical positioning

It's not over yet

Dr Felix Brill, Chief Investment Officer VP Bank
Reading time: 5 Min
The corona crisis eclipses much of what we have experienced in our lives. The extreme stock market swings continue unabated. While they closed down on almost all days in recent weeks, the opposite was true this past week. The US stock index S&P 500 rose by a whopping 18% in three days and thus as strongly as last seen in the 1930s during the Depression. For us, this is a signal: we recommend reducing the tactical equity overweight and, secondly, to be prepared for setbacks.

With the recommendation of March 10  to overweight stocks in the portfolio, we positioned for a strong counter-reaction on the equity markets after the losses. This is a typical pattern when markets correct as strongly as they have done in recent weeks. However, the severity of the countermovement is extraordinary. In our view, the extreme price jumps of the last three days have now increased the risk that there will be a new downward movement. This is also a pattern we know from past stock market corrections.

In our view, the extent of the price increase of the last few days is not due to sufficiently good news. Certainly, US lawmakers agreed on the largest rescue package in history. In other countries, too, all the levers were pulled in the face of a crisis of unprecedented proportions. In Germany, the debt brake has even been suspended and there is talk of so-called corona bonds in the EU, reviving the arguments for eurobonds, i.e. the mutual liability of the euro countries as discussed during the eurozone crisis. All these are important signals for the financial markets.

At the same time, the real economic data is devastating. Purchasing managers' indices, an early indicative signal, have collapsed in Europe like never before. The weekly applications for unemployment benefits in the US have increased more than tenfold to over 3 million. Such news shows how abruptly economic activity has stopped. In addition, the spread of the coronavirus has still neither slowed down nor stopped. According to Johns Hopkins University, the United States now has more registered cases than China.

Against this background, we expect that investors will have to digest a flood of bad news in the coming days and weeks. In the view of the Investment Committee, the gains observed on the US stock markets over the past three days, as well as elsewhere, will not be sustained. We have therefore closed the tactical equity overweight in the asset management mandates. We recommend a neutral equity weighting.

Important legal advice

This documentation was produced by VP Bank AG (hereinafter the bank) and distributed by the companies of the VP Bank Group. This documentation does not constitute an offer or an invitation to purchase or sell financial instruments. The recommendations, estimates and statements contained therein reflect the personal views of the relevant analyst of VP Bank AG at the time of the date stated on the documentation and can be changed at any time without prior notice. The documentation is based on information that is considered reliable. This documentation and the assessments or assessments made therein are prepared with the utmost care, but their accuracy, completeness and accuracy cannot be guaranteed or guaranteed. In particular, the information contained in this documentation may not include all relevant information on the financial instruments covered or their issuers.

For more important information on the risks associated with the financial instruments in this documentation, the proprietary business of the VP Bank Group or the management of conflicts of interest in relation to these financial instruments, and for the distribution of this documentation, see


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