Germany’s benchmark DAX stock index briefly broke through the 20,000-point barrier for the first time on Tuesday after rising in morning trading.
The rally means the DAX has now risen by around 3,000 points over the course of 2024, after cracking the 17,000-point mark in December 2023. In the later morning, the index eased slightly to several points below 20,000.
Hope among investors that interest rates will continue falling in both the United States and the eurozone have helped drive the DAX higher for months.
In view of the recent significant fall in inflation, investors are betting that the European Central Bank (ECB) and US Federal Reserve will cut key interest rates further and thus boost the sluggish economy, particularly in Germany.
The prospect of falling interest rates is good news for equity investors. Shares are becoming more attractive again compared to fixed-interest securities such as bonds.
Loans are becoming cheaper, companies can therefore finance themselves more easily and investments are becoming more affordable.
Stocks soar, economy sags
The record performance of Germany’s key stock-market index stands in contrast with the country’s economy, which has been stagnant or even shrinking for much of past three years.
However, investors are often looking not at the current situation, but at future profits.
In addition, most of the 40 blue-chip stocks that make up the DAX index are major German corporations that are internationally active. For at least some of those firms, the sputtering German economy is just one market among many.
Solid economic data from China also provided a tailwind for share prices recently. It’s possible furthermore that German stocks got a bump from France’s current budget and governance crisis, with investors potentially shifting investments to Germany.
A Trump bump?
The election of Donald Trump as the next US president at the beginning of November put the financial markets in a buoyant mood, at least in the United States.
This is because Trump has promised tax cuts, less regulation – as well as high tariffs on imports, which could benefit the domestic economy and domestic producers in particular.
Some investors expect international companies from Germany that are active in the US to get a boost as well.
Typical year-end
The strong annual result for the DAX – which is up 19% on the year so far – may attract further buyers, according to observers.
Rising share prices at the end of the year are typical. On the stock market, this phenomenon is known as the “year-end rally.”
Source: dpa.com