The hope of falling key interest rates has driven the DAX to record highs. At 16,551.34 points, the leading German index exceeded its four-month-old record by a good 22 points. Ultimately, it closed 0.78 percent higher at 16,533.11 points. “The all-time high acted like a magnet in the past few days and was finally jumped over today,” commented Konstantin Oldenburger from broker CMC Markets. The DAX refuses to give in and thus go into a correction.
The year-end rally 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 annual low in March, it has now increased by around 13 percent. The MDax of medium-sized companies rose by 0.46 percent to 26,491.45 points on Tuesday.
The development on the stock market is in contrast to the economic downturn, especially in Germany. However, it is primarily the expected profits that are traded on the stock exchange. So the stock market is anticipating a recovery in corporate profits. In addition, the Federal Republic is just one market among many for many corporations.
In addition, stocks become more attractive compared to fixed-interest securities such as bonds when interest rates on the capital markets fall. Investors then place more emphasis on high-yield stocks in their portfolios than on less-yielding bonds.
The most important buying argument in recent weeks has been the hope of stock investors that the European Central Bank and the US Federal Reserve have completed their interest rate increases and will begin cutting them next year. Since excessive inflation is harmful to the economy, the central bank had to counteract this by raising key interest rates.
Lower interest rates can have a positive impact on the economy as investments become cheaper for companies. In addition, loans for consumers are also becoming cheaper, which can boost demand for real estate, for example.
Markets are hoping 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 further fuel to investors' interest rate expectations. Although he reiterated his willingness to raise interest rates further if necessary, he also said that monetary policy was already quite restrictive.
“Everything is just falling into place for stocks at the moment, and the Fed chief didn’t sound strict enough on Friday to really put a stop to the current euphoria,” explained analyst Jochen Stanzl from broker CMC Markets.
Against this background, US labor market data on Friday will be important. The development of the labor market plays a major role in the Fed's monetary policy as an indicator of the strength of the economy, but also of inflationary pressure.
Capital market expert Sebastian Dörr said about 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 end." The former will probably be the case in 2023: So far this year, the Dax has gained almost 19 percent, slightly more than the European EuroStoxx index. In a global comparison, it clearly overshadows the US leading index Dow Jones, but not the Nasdaq tech exchange.
Brenntag and Vonovia asked
Among the German individual stocks, there was news from the chemicals trader Brenntag, among others. The company wants to promote the unbundling of its two business areas and has set new financial targets. The shares, which had been running strongly until the end of November, initially fell significantly, but closed 0.6 percent higher.
In the real estate sector, which is in demand across Europe, Vonovia shares gained 1.3 percent. The group wants to sell more properties and is also focusing on commercial properties. The industry suffered particularly from the central banks' interest rate hike cycle.
Lanxess shares topped the MDax with a gain of 5 percent. After an investor event, concerns that the specialty chemicals company might need a capital increase subsided.