The DAX index continued soaring this week as focus shifted to the upcoming European Central Bank (ECB) interest rate decision. The index, which tracks the biggest blue-chip companies in Germany, rose to a record high of €20,355, bringing the year-to-date gains to about 22%.
ECB interest rate cuts
The DAX index surged to a record high after Europe published a series of weak macro data this week. A report on Monday showed that the bloc’s manufacturing PMI retreated to 45.2 in November, signaling that the sector was contracting.
Another report revealed that the services PMI improved to 49.2, while the composite PMI moved to 48.3. While these were improvements, they remained below 50, a sign that the sectors contracted.
Therefore, there are rising odds that the European Central Bank will decide to cut interest rates again next week. If this happens, it means that the bank has slashed rates by about 1% this year.
Historically, stocks do well when a central bank is cutting rates. For one, these cuts help to shift investors from the low-yielding bonds to the equities market. Analysts expect the bank to deliver at least two more interest rate cuts in 2025.
The DAX index also jumped as investors ignored geopolitical risks after Trump’s election in the US. Trump has threatened to impose large tariffs from key US allies and foes.
In a recent statement, he focused on Mexico, Canada, and China, which he accused of promoting illegal immigration. He left Europe from his initial list, a sign that he intends to negotiate with the region.
Automobile stocks lag the DAX 40
Still, the top automobile companies in the DAX index have continued to underperform the market.
Volkswagen stock price has plunged by over 20% this year as concerns about the company rose. Its sales have retreated, pushing the company to start a €4 billion cost-trimming exercise.
The company plans to close three plants in Germany as part of its strategy to reduce its costs. These actions have been resisted with workers, who intend to strike in protest.
Volkswagen is facing challenges as Chinese companies boost their market share globally. Some of the most notable companies that have become global juggernauts are Nio, BYD, and Li Auto.
Other German automakers are not doing well. BMW stock has dropped by 21%, while Mercedes-Benz Group stock has fallen by 8%. Porsche shares have fallen by 24% this year.
Similarly, Continental AG, a leading supplier to German automakers, has dropped by about 12% this year.
Top German stocks in 2024
Many DAX index companies have done well this year, despite the ongoing challenges in the country.
Adidas stock has jumped by 30% this year, outperforming the likes of Nike and Lululemon Athletica. Deutsche Bank, the biggest bank in the country, soared by 37% this year, continuing a recovery that started a few years ago when Christian Sewing became CEO.
Commerzbank stock has soared by 40%, primarily because of the continued accumulation by Unicredit. Analysts believe that the latter will make a complete bid for the company.
Deutsche Telecom stock has risen by 40%, this year. Rheinmetall share price has surged by 130% as demand for defense assets rose. Other top gainers in the DAX index are companies like Zalando, Siemens Energy, and Airbus Group.
DAX index analysis
The daily chart shows that the DAX 40 index has been in a strong bullish trend in the past few days. It has risen in the past six consecutive days, crossing the key resistance point at €19,668, the previous all-time high.
The index has moved above all moving averages, while the Relative Strength Index (RSI) has moved close to the overbought level.
Therefore, the path of the least resistance for the DAX index is higher, with the next level to watch being at €20,500.
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