DAX-Index: German euphoria not yet at an end

Publication date: May 8, 2025

Furthermore, we explore the reasons behind the increase and the potential outcomes that could benefit us as investors. The DAX is performing strongly and has reached a critical juncture, making it an opportune moment for this article.

image_here

DAX-Index

The DAX is Germany's main stock index and consists of the 40 largest and most liquid listed companies on the Frankfurt Stock Exchange. The composition of the DAX (read our article on the composition of the DAX here) is weighted by market capitalization adjusted for free float market cap. This means that companies with a higher market capitalization have a heavier weight in the index, but only the proportion of shares that are free float counts.

In the DAX, reweighting takes place quarterly, and a stock is allowed to have a maximum weight in the index of 10%.

As of early 2025, the companies below are the biggest players in the DAX. You can see the names that are familiar to many. We have written articles about some of these stocks. Click on the link behind the stock.

There are several factors that explain this strong performance. In summary, the major players are performing well, and the government is investing heavily.

The DAX is dominated by large multinational companies. About 80% of DAX companies' sales come from abroad, especially the US and Asia. This protects against domestic economic fluctuations and makes the DAX less dependent on the German economy. The DAX also has a relatively large presence of strong technology companies, such as the biggest player in the DAX: SAP. Large sector leaders such as Allianz, Deutsche Telekom, Merck, and Siemens Energy have helped the index rise even when the broader economy has struggled.

Goldman Sachs has called this the "Magnificent 7" because these companies are the biggest contributors to earnings. These companies are well-positioned in sectors such as insurance, telecom, defense, and technology, which have bolstered their global performance.

Germany has announced plans for significant investments in infrastructure and defense, boosting the economy and also benefiting the profitability of many DAX companies, especially in industrial and technology-oriented sectors. Germany also continues to invest heavily in renewable energy and is a leader in green technologies. This has led to growth in companies such as Siemens Energy and others in the renewable sector, benefiting the DAX.

The German economy has traditionally benefited from strong exports. Although global trade has experienced some pressure and the German automotive industry is struggling, many DAX companies continue to benefit from demand for high-quality German products and technologies, especially in Asia and North America.

What is the outlook for the DAX?

Both fundamental and technical analysts from major banks and trading houses are positive. This is due to strong corporate results, international diversification, and government incentives.

Our longer-term expectation is also positive, but for the short term, we need to time sharply. We always aim for a unified forecast based on the most likely scenario. However, the current geopolitical situation requires us to consider multiple scenarios.

To get a good idea of the major trend, below you will find the price chart of the DAX over the past 6 years. You can see the sharp rise from November 2024 and the sharp correction, plus a strong recovery after the US announced import tariffs.

Positive scenario:

The US and China reach an agreement, and import tariffs are drastically reduced or even eliminated. The labor market remains stable and inflation returns to the desired 2%. Room for interest rate cut US.

The DAX breaks out and shoots like a rocket to the price target of 27,000. The breakout is valid at a closing level above 23,500.

Negative scenario:

Trade war escalates. Inflation rises and economic growth stagnates.

In that case, the DAX will go about 20% lower than the current level. At that point, this will again give opportunities to buy the DAX as the price target remains at 27,000.

The Fed also indicated in its statement last Wednesday night that its monetary policy will depend entirely on the macroeconomic data of the coming period. This concerns the development of the labor market and inflation. For the Fed, too, it remains to be seen how the current tense situation unfolds in the coming months. The FED is rightly keeping its powder dry and will act on developments in the market. This is exactly what we have in mind as well.

The markets are tense and volatile because of the uncertain situation. We are watching the track record and waiting for the right moment to enter. This could be at the breakout above 23,500 or if the situation deteriorates around the 19,000 level.

Conclusion

The DAX is a strong index with much potential and outperforms many other Stock indices. The outlook is positive.

In the uncertain period since the beginning of April 2025, the DAX fell hard but managed to recover very strongly. The DAX is at an important point of breaking through or correcting significantly first. This is more than usual, currently entirely dependent on developments regarding the trade war and inflation. For the longer term, we are positive with a price target at 27,000, which is about 15% above current levels.

There is a reasonable possibility that the DAX could still go back to the 19,000 level. That is about 20% below the current level. You could consider taking a modest buying position if the DAX closes above 23,500. This can be done through an ETF. Target price 27,000. If the DAX falls to 19,000 in times of panic, you may consider buying additional shares. Target price remains at 27,000.

Disclaimer: Investing involves risk. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. They are therefore for educational purposes only.