I can;t speak to the validity of the answer but it seems the DAX like the SP500 is experiencing a disconnect for their associated economies.
Keep in mind if US interest rates get back up to 5 percent a lot of people last time exited the market for a guaranteed return.
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perplexity.ai
Why is the DAX as an all time high if there are structural issues with the Germany economy?
Edit Query
Germany: DAX index hits record high of 22,000 points
dw
Germany expects economic stagnation in 2025 as coalition collapse ...
cleanenergywire
Why is the DAX hitting fresh record highs?
ig
+9 sources
Answer
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- International exposure: DAX companies generate only about 20% of their revenue domestically, with the majority coming from international markets 3. This global revenue profile insulates the index from Germany's domestic economic issues 3.
- Composition of the index: The DAX's performance is driven by a few multinational corporations, while many other companies in the index are struggling 1. For example, SAP gained 70% in 2024, significantly boosting the index 3.
- Attractive valuations: The DAX's current valuation of around 18 times earnings is more attractive compared to the S&P 500's multiple of 28, making it appealing to investors seeking global growth at reasonable prices 3.
- Interest rate expectations: Sinking interest rates have contributed to the DAX's performance, as investors anticipate a more favorable environment for stocks 1 4.
- Sector diversity: The DAX's lower technology weighting has been beneficial during recent AI-related market volatility 3.
Disconnect between stock market and economyThe DAX's performance highlights the disconnect between national economic performance and stock market returns 3. While Germany's economy is expected to remain stagnant in 2025 due to weak business prospects and geopolitical uncertainty 5, the stock market is influenced by different factors:
- Global economic conditions: The DAX is more reflective of global economic conditions rather than solely German economic performance 3.
- Investor sentiment: Despite pessimistic economic data, contrarian investors are beginning to see potential value opportunities in European markets 6.
- Specific sector performance: Certain sectors, such as defense, have seen significant gains due to expectations of increased European defense spending 7.
This divergence between economic data and stock market performance demonstrates that stock indices do not always directly reflect the health of a country's economy, especially when the constituent companies have significant international exposure 39. |
