The German Dax stock market forces rose to a record high

Germany’s Dax index rose to an intraday record high on Friday as rising investor confidence in corporate earnings made it Europe’s second best-performing major stock market this year.

The index, which measures Germany’s 40 largest listed companies, rose more than 0.9 percent to 16,320, surpassing its previous peak of 16,290 reached in November 2021.

Shares in Adidas and Siemens have risen by almost a quarter this year as investors warmed to stronger-than-expected corporate profits, helping the market ease concerns that Europe’s biggest economy is on the brink of recession.

The Dax returned 17.2 percent this year, including dividends, slightly behind France’s Cac 40 of 18 percent, but well ahead of the FTSE 100’s 6.2 percent return, according to Bloomberg data. Wall Street’s S&P 500 has returned 10 percent over the same period, largely due to gains in a certain swath of technology stocks.

Strong earnings “underpinned the market’s resilience” and prompted some investors to “turn more optimistic on [European] shares,” Bank of America analysts said.

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Agnès Belaisch, chief European strategist at the Barings Investment Institute, said the low unemployment rate had resulted in relatively strong wage growth, “helping companies to pass on much of the cost increase to retail prices, protecting margins and producing surprisingly resilient earnings reports.”

Dax index line chart showing robust corporate earnings boosted German stocks

US markets, dominated by glitzy tech stocks, have significantly outperformed European markets over the past decade, but that trend has reversed since September.

Companies such as Airbus and Mercedes-Benz have risen 13 percent and 12 percent respectively this year as the heavy-manufacturing Dax benefited from cooling energy prices and China’s economic reopening.

But these and other positive catalysts have now “largely played out”, according to analysts at Barclays, who identified China’s “flaky” recovery and tighter credit conditions in the coming months as key concerns.

“Of course, the macroeconomic picture is not fantastic, rosy [for the Dax], said Carsten Brzeski, economist of the Dutch ING bank. “Certain financial markets are taking on a life of their own and are somewhat detached from the gloomy macroeconomic backdrop, which is certainly not supportive of record-high equity markets.”

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The Dax reached its record high shortly after the latest Zew index, a measure of investor sentiment, fell into negative territory for the first time since December in May, falling from 14.8 to 10.7. European equity analysts at Morgan Stanley said the renewed weakness in the survey “suggests weakness in equity markets.

According to data published by the Federal Statistical Office last week, German industrial production fell by 3.4 percent in March compared to the previous month, the biggest drop in the past 12 months.

Eurozone inflation rose to 7 percent in the year to April for the first time in six months, despite the ECB’s aggressive monetary tightening campaign. “But we still have negative real interest rates, so there is no alternative to equities,” Brzeski said.