DAX Hits Record High: Key Factors Behind Germany's Stock Market Boom
Stock soars to unprecedented heights for Dax index - Reaches peak level: Dax achieves new height.
Germany's leading stock index, the DAX, reached an all-time high on Tuesday, surging past 24,161 points. This significant achievement, marking a 21% year-to-date gain, occurred despite ongoing uncertainties, as US markets faced a decline.
The anticipation surrounding US stock markets, which were closed on Monday due to a holiday, was palpable. Initial indications suggested potential gains in New York, a reflection of relief after US President Donald Trump granted Europe a reprieve following his latest tariff threat.
The rally in defense stocks also remained a focal point, with record highs being recorded across major German defense companies. These consisted of Rheinmetall, Renk, and Hensoldt, which continued their strong performance, driven by geopolitical tensions surrounding the Ukraine war and NATO's discussions regarding increased defense spending.
Amidst this, German Chancellor Friedrich Merz (CDU) announced the elimination of restrictions on the use of German weapons against Russian territory. The three aforementioned defense stocks in the DAX and MDax saw their shares soar, with Rheinmetall reaching a peak of up to 1,883 euros.
The latest surge in the stock market was influenced by a combination of factors, including easing geopolitical tensions, particularly in trade, solid quarterly reports, and a touch of relief in inflation data, according to analysts. Furthermore, the planned state investment package in Germany, aiming to provide up to 500 billion euros for infrastructure and climate protection, added to investor optimism.
However, trade conflicts between the US and China, the world's two largest economies, had weighed heavily on financial markets for weeks. Concerns about a global recession were high. Experts, however, caution against premature optimism, as trade normalization between the US and China remains unclear.
Despite the economic crisis in Germany, the stock market rally contrasts markedly. Investors often focus on future profits rather than the current situation, with the 40 companies listed in the DAX being predominantly internationally oriented and generating the majority of their sales abroad. In Europe, stocks have risen more significantly than in the US since the beginning of the year, thanks to many good corporate earnings, the continued equity-friendly monetary policy of the ECB, and relatively low valuations compared to US stocks.
The stock market is also driven by expectations of lower interest rates in the Eurozone, a move aimed by the ECB to boost the weak economy. Recent inflation concerns have subsided, with many economists expecting lower interest rates in the coming months. The ensuing lower interest rates make stocks more attractive compared to fixed-income securities, making loans cheaper and investments more affordable, potentially supporting the economy.
The Commission, in its efforts to address environmental concerns, has also adopted a proposal for a Council regulation on the financing of real-estate and stock-market investments, aiming to promote sustainable and green investing.
Moreover, the approved state investment package in Germany, targeting up to 500 billion euros for infrastructure and climate protection, could potentially boost real-estate markets and encourage sustainable investing in related sectors.
