Record-breaking achievement by Dax - Dax attains an unprecedented peak
The DAX surged to a fresh record high on Tuesday, culminating at 24,161 points. Despite ongoing uncertainties, the flagship German index has gained approximately 21 percent this year, outpacing US markets that have seen a downturn.
As US markets remained closed on Monday due to a holiday, investors eagerly awaited their opening, anticipating gains in New York. A positive outlook stems from US President Donald Trump granting Europe a reprieve following his recent tariff threat.
Another significant focus remained on the escalating conflict in Ukraine. Despite NATO countries discussing increased defense spending to five percent of GDP, defense stocks continued their record rally. German Chancellor Friedrich Merz (CDU) announced the lifting of restrictions on the use of German weapons against Russian territory.
Notably, German defense companies, such as Rheinmetall, Renk, and Hensoldt, experienced record highs. Shares of Rheinmetal climbed to as high as 1,883 euros in early trading, reflecting a considerable increase of over 200 percent since last year.
Analysts attribute the latest stock market boom to a synergy of easing geopolitical tensions, solid quarterly reports, and a touch of relief in inflation data. Additionally, the planned state investment package in Germany is bolstering optimism among market participants. The package totals up to 500 billion euros, earmarked for infrastructure and climate protection projects.
While the ongoing trade conflict between the US and China was a concern for financial markets for weeks, experts caution against premature optimism. It remains unclear if trade relations between the two economic giants will normalize.
The surge in stock prices stands in contrast to the ongoing economic crisis in Germany. Investors often look beyond the immediate circumstances, focusing on future profits. The DAX's constituent companies generate the majority of their sales abroad, positioning them to be relatively unaffected by domestic issues.
European stocks have significantly outperformed US counterparts since the beginning of the year, thanks to vibrant corporate earnings, the continued equity-friendly interest rate policy of the European Central Bank (ECB), and relatively low valuations compared to US stocks. Additionally, expectations of lower interest rates in the eurozone make equities more appealing, as they become more attractive compared to fixed-income securities and stimulate economic growth.
envelope * Ukraine War Escalation envelope * Increased Defense Spending by NATO Countries envelope * Global Military Budget Growth envelope * Rheinmetall's Exposure and Positioning envelope * Market Rally and Sustainability
Sources: [1] Reuters, [2] Financial Times, [3] Bloomberg, [4] BBC, [5] The Wall Street Journal.
- The Commission, amid the market rally, has also proposed a Council regulation on the financing of real-estate, stock-market investments, and environment-protection projects.
- As the real-estate market experiences growth, the escalating Ukraine war and increased defense spending by NATO countries could potentially impact global military budgets, with German defense companies like Rheinmetall benefiting, given their exposure and positioning in the market.
