Records and no end: The prospect of falling interest rates and tailwind from the US stock markets after Donald Trump’s election victory have pushed the Dax above the 20,000 point mark for the first time. While the German economy is in crisis, investors are rejoicing. The price of gold and the cryptocurrency Bitcoin are also close to their highs. What are the reasons for the stock market euphoria? And what are the prospects?
DAX companies globally positioned
The German economy is on the verge of recession. But the 40 DAX companies do large parts of their business abroad, where the economy is growing faster than in the home market – for example in the USA and China, but also in Euro states such as France and Spain.
Even though there has been a lot of bad news from the auto industry recently, things are going well for some DAX companies. Insurers such as Allianz and Munich Re are making record profits, as is the industrial group Siemens. Banks are benefiting from increased interest rates and the shares of the most valuable DAX company SAP have reached a record high. “The German problem sectors, especially the automotive industry, only have a very small percentage share of the DAX,” says DekaBank chief economist Ulrich Kater. In any case, investors often do not look at the current situation, but rather at future profits.
Strong year for the stock market – and the year-end rally is underway
For the stock market year 2024, the Dax has already recorded a gain of almost 20 percent. Within just one year, the leading index rose by around 3,000 points – it was only in September that the 19,000 point mark was broken. The strong annual balance sheet should attract more buyers, say stockbrokers. Because it is important not to “miss the train completely”. Rising prices at the end of the year are typical: on the stock market this is referred to as the “year-end rally”.
There has also recently been positive stimulus from solid economic data from China. Traders also pointed to the budget dispute in France and political uncertainty in Paris. Investors could therefore shift investments to Germany.
Prospect of falling key interest rates
Investors are primarily betting that the US Federal Reserve and the European Central Bank (ECB) will further reduce key interest rates. Inflation is ebbing in the euro zone as concerns about the weak economy grow. Economists consider the ECB’s interest rate cuts to be a foregone conclusion when it makes its next decision on December 12th – and also next year.
For investors, the prospect of falling interest rates is positive: stocks will then become more attractive than fixed-interest securities. Loans are becoming cheaper, companies can finance themselves more easily, and investments are becoming more affordable.
Trump creates a good mood on the stock market
Tailwind for the Dax comes from the US stock exchanges, where the market-wide S&P 500 index has also reached a record high. Trump’s election victory boosted prices there. The US President-elect has promised tax cuts, less regulation and high tariffs on imports. The domestic economy should benefit from this. “This time it took a long time for the great Wall Street euphoria to reach Germany,” says market observer Thomas Altmann from QC Partners. Now the euphoria can also be really felt in this country.
Bitcoin on the rise
The cryptocurrency Bitcoin benefited particularly strongly from Trump’s victory. The price is trading close to the $100,000 mark – before the elections it was less than $70,000. During the election campaign, Trump described himself as the “crypto president” and held out the prospect of easing strict US rules. But experts warn against too much euphoria. It remains unclear to what extent Trump will actually loosen regulations, wrote analyst Timo Emden from Emden Research. During his first term in office, Trump expressed skepticism about Bitcoin.
Gold benefits from global crises
Things haven’t been going so well for gold investors recently. The price of the precious metal was recently at around $2,640, slightly below the record of $2,800 per troy ounce set at the end of October. The prospect of falling interest rates also tends to help gold: then buying the precious metal, which pays neither interest nor dividends, becomes more attractive.
In addition, gold is likely to remain in demand as a hedge against inflation – for example, if inflation in the USA rises with high import tariffs and Trump influences the Fed. Traditionally, investors value gold as a safe haven.
Risks for the DAX in the new year
Stock market records or not: the Dax will face stress tests in 2025. Investors are likely to hold back around the federal election on February 23rd. It will be months before a new federal government is in place that could stimulate the weak German economy with reforms.
Trade conflicts are also a major risk. Trump has announced high tariffs on imports from Europe. Economists fear a trade war with the EU, which could respond with countermeasures. The German economy, which has strong exports, would be particularly affected. Bundesbank President Joachim Nagel warns that Trump’s tariff plans could cost Germany one percent of its economic output.
“The first half of 2025 will be bumpy,” writes DZ Bank analyst Sören Hettler. “The US tariffs should initially cause significant uncertainty in the international financial markets.” DZ Bank estimates that as a result of an adjustment effect to US politics, the 21,000 point mark in the Dax should fall in 2025.
