With Germany in recession, why is the DAX 40 at record highs?
One of the market disconnects seems to be around the DAX 40 index and the German economy. Why is the DAX doing so well, when recent data shows the German economy is teetering on the brink of recession?
While jobless data is slightly better than forecast and inflation is coming down, weak retail sales adds to the questions about the DAX. IGTV caught up with IG’s analyst in Frankfurt, Salah-Eddine Bouhmidi, to look at the reasons why the index is as strong as it is and, indeed, how much further it may go before more questions are asked about the longer term outlook.
(AI Video Summary)
Surprising DAX 40 performance despite struggling German economy
The German stock market, known as the DAX 40, has been doing surprisingly well even though the country's economy is struggling. This is good news for investors, but there are some worries about the overall economic outlook. The unemployment rate is going up, and the cost of things like food is also increasing. A IG financial expert named Salah-Eddine Bouhmidi thinks that things like problems in other countries and bad weather affecting crops could be causing prices to go up. But even with these concerns, the DAX is still going up in value.
To get a better understanding of how well the DAX is doing, Bouhmidi looked at how many companies in the stock market were doing better than usual. He found that 26 out of the 40 companies were doing well, which is a good sign. However, he also noticed that the volatility index, which measures how much the stock market is changing, is going up. This could mean that things will be more unpredictable in the future, and the stock market might go down instead of up.
What then could happen next?
Bouhmidi thinks that the DAX could go up even more in the near future. He estimates that it could go as high as 17,100 points in the short term and 17,500 points in the first half of the year. But he warns that it's important for the DAX to stay above the 16,800 point mark to keep going up.
The German economy has always been one of the strongest in Europe. The European Central Bank, which makes decisions about money, usually keeps interest rates low to help the German economy. Bouhmidi thinks that if the bank lowers interest rates even more, it would help the DAX and the rest of the German stock market. However, he also says that there are some challenges for the bank, like worries about inflation, or prices going up too much.
Even though there are some concerns about the German economy, the DAX is still performing well. Investors are happy with how things are going, but there are still some things to keep an eye on. The decisions of the European Central Bank and any inflation risks are also important to consider when thinking about the DAX and the German stock market.
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