Dax rises to record high

Stock exchange in Frankfurt - Dax rises to record high

Hopes of falling key interest rates have driven the DAX to record highs. At 16,551.34 points, the leading German index surpassed its four-month-old record by a good 22 points. It ultimately closed 0.78 percent higher at 16,533.11 points. "The all-time high acted like a magnet over the past few days and was finally surpassed today," commented Konstantin Oldenburger from broker CMC Markets. The Dax is refusing to give way and thus enter a correction.

The year-end rally thus continues. In November alone, the Dax gained 9.5 percent in value. Starting from the interim low in October, which at 14,630 points was close to the low for the year in March, it has now gained around 13%. The MDax of medium-sized companies rose by 0.46% to 26,491.45 points on Tuesday.

The development on the stock exchange thus contrasts with the economic slump, particularly in Germany. However, the stock market mainly trades in expected profits. The stock market is therefore anticipating a recovery in corporate profits. Moreover, for many companies, Germany is just one market among many.

In addition, shares become more attractive than fixed-interest securities such as bonds when interest rates on the capital markets fall. Investors then focus more on high-yielding shares in their portfolios than on lower-yielding bonds.

In recent weeks, the most important reason for buying equities has been the hope of equity investors that the European Central Bank and the US Federal Reserve will be through with their interest rate hikes and start cutting rates in the coming year. As excessive inflation is detrimental to the economy, the central banks have had to take countermeasures by raising key interest rates.

Lower interest rates can have a positive effect on the economy, as investments for companies then become cheaper. In addition, loans for consumers also become cheaper, which can boost demand for real estate, for example.

Markets hope for spring

The markets are now pricing in interest rate cuts in the spring. Just before the weekend, a speech by US Federal Reserve Chairman Jerome Powell gave investors' interest rate expectations a further boost. Although he reiterated his willingness to raise interest rates further if necessary, he also said that monetary policy was already quite restrictive.

"At the moment, everything simply fits together for equities, and the Fed chief did not sound strict enough on Friday to really put a stop to the current euphoria," explained analyst Jochen Stanzl from broker CMC Markets.

Against this backdrop, US labor market data on Friday will be important. This is because the development of the labor market plays a major role for the Fed's monetary policy as an indicator of the strength of the economy, but also for inflationary pressure.

Capital market expert Sebastian Dörr said of the year-end rally: "It puts the icing on the cake for good stock market years, but at least it gives bad ones a good ending." In 2023, the former is probably the case: so far this year, the Dax has gained almost 19 percent, slightly more than the European EuroStoxx index. In a global comparison, it clearly outperforms the leading US index Dow Jones, but not the tech exchange Nasdaq.

Brenntag and Vonovia in demand

Among the individual German stocks, there was news from chemicals trader Brenntag, among others. The company intends to press ahead with the unbundling of its two divisions and set itself new financial targets. The shares, which had performed strongly until the end of November, initially fell significantly, but closed up 0.6 percent.

Vonovia shares gained 1.3 percent in the real estate sector, which is in demand throughout Europe. The Group intends to sell further properties and is also focusing on commercial properties. The sector had suffered particularly from the central banks' cycle of interest rate hikes.

Lanxess shares topped the MDax with an increase of 5 percent. Following an investor event, concerns that the specialty chemicals group might need a capital increase eased.