Stock exchange in Frankfurt - Year-end rally pushes Dax above 17,000 points for the first time
The prospect of key interest rates falling significantly again soon has catapulted the DAX above the 17,000-point mark for the first time. The leading index climbed 1.4 percent to 17,002 points, continuing its recent record-breaking run.
In the course of its year-end rally from its low since October, the leading index had surpassed its four-month high in the previous week and subsequently reached new record highs almost daily.
On Wednesday evening, the US central bank, the Fed, kept its key interest rates stable. However, there are signs of interest rate cuts for next year, which are also expected on the market.
Investors' interest rate hopes received a fresh boost from the Fed the previous evening. There will probably be around three interest rate cuts in 2024, with a total volume of 0.75 percentage points. At least that is what the Fed's new economic forecast suggests, which exceeds the market's previous interest rate expectations.
"US Federal Reserve Chairman Jerome Powell has played Santa Claus for the stock markets. Now stock market players are expecting ECB President Christine Lagarde to play Santa Claus," commented portfolio manager Thomas Altmann from QC Partners. Interest rate cuts are at least the focus of the Q&A session. According to Altmann, the first cut for April is currently being priced in on the stock markets. "A lot will depend on whether Lagarde leaves it at that or whether she warns the stock market against premature optimism."
Since the beginning of the rally on the stock market, expectations of the Fed have already risen significantly, after initially hoping for only one interest rate cut in the coming year. According to Altmann, stock market investors are currently betting that the Fed will make further adjustments to its interest rate hikes in 2024.
The prospect of falling interest rates is good news for equity investors. Shares are becoming more attractive again compared to fixed-interest securities. Loans are becoming cheaper, companies can therefore finance themselves more easily and investments are becoming more affordable.
The DAX broke through the 15,000 and 16,000 marks in March and August 2021, when stock markets around the world left their coronavirus lows from the previous year behind them. At the start of the pandemic, the index fell to 8255.65 points. Since then, the price has more than doubled - even though the Russian war in Ukraine and record inflation have dealt severe blows to the economy.
This development also contrasts with the meagre economic situation in Germany. However, share investors are often not necessarily looking at the current situation, but at future profits. In addition, most of the 40 companies listed on the DAX have an international presence: Germany is therefore just one market among many.
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- Despite the tough economic situation in Germany, the DAX's year-end rally has been driven by investors' hopes for key interest rate cuts, particularly from the ECB President Christine Lagarde.
- The prospect of lower interest rates in Frankfurt on the Main, as suggested by the Fed's new economic forecast, makes shares more appealing compared to fixed-interest securities.
- The falling interest rates have also made loans cheaper for companies, enabling them to finance their activities more easily and making investments more affordable.
- A notable leap in the DAX was observed in March and August 2021, as stock markets globally surpassed their Coronavirus lows from the previous year, reaching beyond the 15,000 and 16,000 marks.
- Thomas Altmann, a portfolio manager from QC Partners, stated that the US Federal Reserve Chairman Jerome Powell had played a significant role in boosting market optimism with his hints about interest rate cuts.
- The MDAX, another significant German stock exchange index, has also shown resilience, with its prices staying above 30,000 points for months, proving that the attractiveness of German shares isn't limited to the DAX.
Source: www.stern.de
