Dax persists in pursuit of new recording milestones
Party Still Poppin':
The DAX made a fresh bid for records on Friday, ignoring the sobering vibes from international markets. Thomas Altmann, portfolio manager at QC Partners, noted a cautious demeanor among investors, but emphasized they're far from throwing in the towel.
As the day began, the German benchmark index surged by 0.18%, reaching 20,463 points, breaking previous records. Year-to-date, the DAX has shot up by an impressive 22%. Meanwhile, the MDax dipped 0.07% to 26,795 points. The Eurozone benchmark EuroStoxx 50 rose by 0.05% to 4,968 points.
Overseas, things took a downturn. US stocks slumped the previous day, while most of Asia followed suit. However, the DAX seems to be breaking free from the tether of international markets' movements.
The bearish outlook from abroad has little impact on the DAX, thanks to a robust domestic economy, sector-specific optimism, and supportive monetary policy in Europe.
Germany loosened its debt restrictions earlier in 2025, freeing up €500 billion for infrastructure and defense spending. This fiscal stimulus has revitalized sectors like engineering and construction, with stalwarts like Siemens already experiencing double-digit growth in shares. The positive economic sentiment is mirrored in the ZEW business expectations indicator, reaching its highest levels since February 2022.
Leading industrial and automotive companies, including the likes of Volkswagen, Daimler, Siemens Energy, and Munich Re, are reporting impressive earnings and performance, bolstering the DAX's upward surge. Adidas, for instance, reported a staggering 155% profit surge in Q1 2025, while Siemens Energy and Munich Re have delivered year-to-date returns of 30% and 25% respectively.
The European Central Bank (ECB) has lowered interest rates twice in early 2025, with predictions of additional rate cuts by year-end. This easing has reduced borrowing costs, encouraging corporate investment and fueling equity valuations.
Favorable trade developments, particularly the recent US-China trade truce, have further lifted market sentiment, supporting the DAX's rally even amid hesitant overseas markets.
Despite the positives, the DAX has experienced some turbulence due to overbought technical conditions and geopolitical risks. However, recent slowdowns in US inflation and corporate earnings have failed to derail the overall upward trend.
As of mid-May 2025, the DAX is only a hair's breadth away from its all-time high of approximately 23,912 points, with current levels hovering around 23,527 to 23,387 points—a mere stone's throw from the record.
Investors eagerly await the US Federal Reserve's interest rate decision next week. The outcome will have a significant impact on global financial conditions and risk sentiment. A dovish stance from the Fed, signaling continued support for global markets, would be a welcome boon for the DAX and European equities. Any hawkish surprises could trigger volatility and dent risk assets. So, keep your eyes peeled and your fingers crossed!
Investors, despite a cautious demeanor due to international market downturns, are far from abandoning their investment in the German stock-market, particularly the DAX, as they continue to find optimism in a robust domestic economy, sector-specific growth, and supportive monetary policies. The finance sector, specifically, is experiencing growth due to fiscal stimulus and lower interest rates, with companies like Siemens, Adidas, Volkswagen, Daimler, Siemens Energy, and Munich Re reporting impressive earnings and returns. However, the DAX remains vulnerable to overbought technical conditions, geopolitical risks, and potential volatility stemming from the upcoming US Federal Reserve's interest rate decision.
