In spite of Trump's import taxes, DAX surpasses historical milestone - could the upward trend continue?
The DAX, Germany's leading stock index, defied expectations and surged past the historic milestone of 22,000 points, despite the tariff announcements made by US President Donald Trump. The index briefly reached a peak of 22,003 points before settling at 21,990 points, representing an increase of 0.4 percent compared to the previous day.
This significant breakthrough follows rapid succession, with the index crossing the 21,000 point mark on January 20 and the 20,000 point mark on December 3. Concurrently, the European counterpart, the Euro Stoxx 50, also rose by 0.4 percent and stood at 5,379 points. Investors remained undeterred by Trump's tariff threats on steel and aluminum imports into the US, which are set to be imposed at 25 percent, without any exceptions or exemptions.
Traders have minimized the influence of tariff threats on their decisions, viewing them as potential tools for achieving deals and compromises that could ultimately benefit all parties. Indeed, the DAX promptly rebounded from the recent market downturn triggered by concerns about AI competition from China.
Several factors contribute to the stock market's rally. Encouraging business figures from large companies, especially American firms, have bolstered investor confidence. The stock market is also buoyed by anticipation surrounding falling interest rates in the Eurozone, a policy that the European Central Bank (ECB) aims to implement to stimulate the sluggish economy. Relief from inflation concerns has further strengthened this optimistic outlook, pushing investors towards the belief of a robust economy with declining inflation rates.
The uptrend on the stock markets starkly contrasts the weak economic condition in Germany; however, investors often focus on future profits as opposed to the current situation. The majority of the 40 companies listed in the DAX are internationally oriented, further highlighting the diversification of the industrial exposure drawing investors away from US-heavy portfolios.
In the face of uncertainty, investors have steered clear of stocks from the cyclical automobile sector due to potential significant impact from US tariffs on imported cars. Top performers in the DAX include the stocks of Deutsche Bank and Siemens, which have gained 1.5 and 1.4 percent, respectively. On the other hand, Bayer and Porsche, the two laggards, have experienced a drop of 1.55 and 1.6 percent, respectively.
The seemingly indomitable strength of the DAX raises questions about its dependency on global trade sentiments. While resilience was showcased in the index's swift recovery after diplomatic intervention following tariff announcements, external shocks can still tip the balance. Whether this resilience will persist relies on global economic health, policy developments, and the direction of trade relations.
[1] The robust DAX rally is underpinned by strong fundamentals, accommodative ECB policy, and attractive valuations.[4] The rally is fueled by robust fiscal stimulus in Germany, accommodative ECB policy, and diversified industrial exposure, which draw investors away from US-heavy portfolios.[4] The immediate reaction of the DAX to tariff announcements demonstrates its sensitivity to global trade tensions, but also its ability to recover quickly due to its underlying strength.
- The surge of the DAX, despite tariff announcements, indicates that investing in the German business sector, particularly with its robust fundamentals and appealing valuations, remains attractive to many investors.
- Concurrently, the growth in the DAX, fueled by strong fiscal stimulus, accommodative ECB policy, and diversified industrial exposure, has driven some investors to shift their focus away from US-heavy portfolios and towards more diversified investments in the European market.
