The DAX index, comprising Germany's top 40 companies by market capitalization, has reached unprecedented heights at the end of 2023. Why is the index doing so well despite the struggling German economy and what are the latest DAX 40 forecasts and price predictions for 2024 and beyond?
The German stock market benchmark index has gained 20% since November 2023, surging past the 16,500-point mark, a level last witnessed in early August 2023. This performance ranks as the second-best annual showing in the past decade.
The German stock market, known as the DAX 40, has been doing surprisingly well even though the country's economy is struggling. This is good news for investors, but there are some worries about the overall economic outlook. While jobless data is slightly better than forecast and inflation is coming down, weak retail sales add to the questions about the DAX.
DAX 40 Forecast & Price Predictions – Key Takeaways
- DAX 40 forecast today: The Dax continues to consolidate around 17,000 but remains above trendline support from the October low. In the short term, a push to a fresh record high seems likely.
- DAX 40 forecast 2024: Most of the experts are forecasting DAX index to reach 17,500 points by the end of the year. However, they warn that it's important for the DAX to stay above the 16,800-point mark to keep going up.
- DAX 40 Forecast for the next 5 years: According to analysts, the bull market will continue within the next few years, but periodic downturns in business activity may bring corrections. The index could break the 20,000 points mark.
DAX 40 Outlook - What's behind the German stock market gains?
To get a better understanding of how well the DAX is doing, we looked at how many companies in the German stock market were doing better than usual. We found that 26 out of the 40 companies were doing well, which is a good sign. However, the volatility index, which measures how much the stock market is changing, is going up. This could mean that things will be more unpredictable in the future, and the stock market might go down instead of up.
Prominent contributors to this recent surge include Infineon Technologies AG, Siemens Energy AG, and Sartorius, all recording gains over the last months of 2023 – the beginning of 2024. Notably, positive gains have been widespread across the DAX components, with only three companies reporting a negative monthly performance.
This remarkable rally in the DAX index is occurring despite less favorable economic data for Germany, which may already be on the verge of, if not already in, a contraction phase. Rising expectations of European Central Bank (ECB) rate cuts, as Euronews recently highlighted, and a substantial decline in oil and natural gas prices have been the two primary factors propelling German equities lately.
ECB rate cuts in 2024
The recent disinflation within the eurozone has fueled hopes that the ECB will initiate rate cuts in the coming year. Money markets indicate that investors are pricing in 137 basis points of cuts through December 2024, implying five interest-rate reductions of 25 basis points, with the first expected in either March or April 2024.
As a result of this notable change in ECB rate forecasts, bond rates have decreased throughout the eurozone. German bond yields just last week fell to a six-month low of 2.17% on December 7, then somewhat increased to the current 2.26%. This rate offers German firms much-needed relief in the form of more feasible refinancing plans for their maturing debts, as it is significantly lower than the 3% level noted in October.
Lower energy prices
The significant decline in energy prices has been another important driver of German stock market success that has set records. The nation's transition strategy towards renewable energy sources by 2030, known as the "Energiewende," has Germany firmly committed to this goal, although purchasing fossil fuels still costs German firms a lot of money.
Positively, the recent sharp drops in the price of natural gas and oil have provided respite to Germany's energy-intensive industries and automakers. The price of Brent crude oil has decreased by 20% since the end of September, while the Dutch TTF benchmark's tracking of European petrol prices has seen a sharp decline of 35% since the end of October and more than 70% since the same time last year.
DAX 40 Forecast - What could happen next?
Despite numerous geopolitical conflicts and weak economic outlooks, stock market experts hold a cautiously optimistic view concerning the future of the German stock market. They expect the Dax to trade between 15,500 points and 17,500 points.
DZ Bank - DAX forecasted to reach 17,500 points
According to a special DZ BANK survey, almost 50 percent of SMEs see Germany as the "sick man" of Europe. This is mainly due to expensive energy and an overburdening bureaucracy. Added to this are economic concerns. "We only expect an increase of 0.5% for 2024," explains Michael Holstein. He attributes the low growth to the continued tense global economy - strong export business at pre-corona levels is therefore unlikely. There is also a weak propensity to buy among consumers.
Chief equity strategist Sven Streibel nevertheless expects new records for the major indices. "Investor sentiment is at its lowest point. If the bad news clears up just a little, there is enormous potential for positive surprises. This speaks for favourable European cyclicals. He forecasts 17,500 points for the DAX by the end of the year.
Landesbank Baden-Württemberg forecast DAX index could climb to 17,500 points in 2024
Landesbank Baden-Württemberg (LBBW), forecasted the Dax 40 index to reach 17,500 points by the end of the year. The Head of the Research Group for Private and Corporate Customers does not expect a strong year-end rally because investors, at best, have only small profit margins on their positions which they have acquired throughout the year, and will act cautiously until the end.
He believes that stock prices, especially for the local stock market, have more potential in the upcoming year. By the middle of the year, according to Fernow, the central banks will begin to loosen monetary restrictions. "This should also have an impact on the long end of the capital market, making stocks more attractive compared to bonds," says the analyst. Now, stock risks are under-compensated, particularly in the US.
Deka Bank forecasted DAX 40 will trade at 17,500 points by the end of the year
Joachim Schallmayer, Head of Capital Markets and Strategy at DekaBank, predicts that the German stock index will reach 17,500 points by the end of the year.
According to him, the global economy appears stable, albeit not very dynamic. The same applies to corporate earnings, even though the energy sector significantly weighed down third-quarter results. Inflation continues to decline, and core rates, excluding the highly volatile energy and food prices, are anticipated to decrease significantly in the fourth quarter and the next year.
Schallmayer expects stocks to move moderately upward with fluctuations. Therefore, he emphasizes the importance of regular and countercyclical investing, as well as dividend collection.
IG.com - DAX forecasted to stay above the 16,800 mark for a long
IG's analysts think that the DAX could go up again soon. They estimate that it could go as high as 17,500 points in the first half of the year. But they warn that it's important for the DAX to stay above the 16,800-point mark to keep going up.
The German economy has always been one of the strongest in Europe. The European Central Bank, which makes decisions about money, usually keeps interest rates low to help the German economy. Analysts think that if the bank lowers interest rates even more, it would help the DAX and the rest of the German stock market. However, they also say that there are some challenges for the bank, like worries about inflation, or prices going up too much.
DAX 40 Analysis - What are charts saying?
On the DAX chart, we can track the time of the first cut for each of those three cycles that have been shown since the year 2000. It’s the 2011 instance that’s of interest, as this was a moderate series of cuts and given the pattern with which those cuts priced in, as opposed to the emergency actions of 2001 or 2008. Slow, steady, and methodical cuts can possibly be absorbed by the financial system without significant unrest. But fast and aggressive cuts can quickly trigger a bull market in bonds and if capital begins to leave the equity space, a new theme can quickly develop, much as we saw in those two earlier instances.
If the ECB can cut rates slowly in 2024, without any abrupt emergency actions, that 17,500 level DAX price prediction coming from most the experts, could very much be attainable.
DAX 40 Price Predictions from AI-based Websites
According to Trading Economics’ DAX 40 forecast 2024, as of February, the index was expected to trade at 16744.05 points by the end of the quarter and at 16152.64 points in 12 months’ time. The agency does not make a DAX 40 forecast for 2025 and 2030.
Gov Capital's DAX 40 forecast 2024, as of February, shows one of the most bullish DAX price predictions among AI-based websites, with the index expected to trade as high as 19,000 points by the end of the year. Furthermore, the DAX is forecasted to trade at 30,000 by the end of 2025. The DAX 40 forecast for the next 5 years seems way too optimistic, with the index expected to reach the 100,000-price level.
On the Wallet Investor website, we can find the DAX 40 price predictions for 2024, 2025, and the next 5 years. DAX 40 is forecasted to reach a maximum price of 17,622 during the year. The 2025 DAX 40 price prediction is flat, while the DAX index forecast for the next 5 years is slightly bullish, with the index expected to trade above 20,000 points.
Before making trading decisions, always keep in mind that predictions from algorithm-based forecasting services and analysts can sometimes be wrong. Their forecasts are based on past trends and might not consider many other facts that can affect the market. You should always do your own research to form an outlook for the DAX 40 index.
What is DAX 40?
DAX is short for Deutscher Aktien Index 40 and tracks the 40 largest German companies in terms of market cap and liquidity. It was established with a base value of 1,000 in 1988 and since 2006, the Xetra trading venue has been computing the index’s price every second.
When the DAX 30 became the DAX 40 in September 2021, the Deutsch Boerse admitted ten more companies to the index, meaning a slightly broader range of sectors covered, as well as other regulatory provisions. The DAX 30 became the DAX 40 on 20 September 2021.
Since its inception at the end of 1987, the DAX has mirrored other indices during major economic events throughout history, including the tech bubble in 2000, significant lows in 2003, as well as other fluctuations over in subsequent years. The index plunged in 2008 amid the global financial crisis and did so again during the global COVID-19 outbreak.
How Is the DAX Index Calculated?
The DAX 40 is computed through the free-float methodology, which means that it takes into consideration only the readily available shares and it doesn’t consider shares that are untradable, like those owned by governments.
Like other blue-chip indices, the DAX Index is also weighted by market cap, so companies with higher market caps have more influence on its value. Companies included in the DAX can have a maximum weight of 10%.
How to forecast the DAX 40 index?
The DAX 40 has an inverse correlation of 70% with the Euro and a positive correlation of 90% with the main US stock indices, according to Blackwell Global. The relationship between the DAX and its US counterparts has occasionally diverged; in 2018, for instance, the 50-day correlation between the two moved negative, suggesting a brief shift in the fundamental patterns impacting global assets.
For example, when the EUR/USD currency pair rises, the DAX index typically falls; conversely, when the Euro falls vs the USD, the DAX rises. Traders utilize this correlation to create reliable trading strategies. However, keep in mind that correlations sometimes can fade unexpectedly.
The DAX is very sensitive to the policies of the European Central Bank, or ECB, which is another fascinating fact. The index is probably going to be impacted by major news releases in the Eurozone. This is so that you can reduce risk since you're basing decisions on accurate information when using the correlation technique to forecast the DAX 40 index.
How to trade DAX 40?
Derivatives are one of the ways you can trade the DAX cost-effectively and efficiently. Generally, online brokers offer a leveraged product based on the cash index (GER30) and a contract based on the underlying futures contract (DAX30.fs).
When you trade indices online, you can speculate on the direction of the underlying instrument (the DAX) without owning it or any of its constituents. You can make use of leverage and you will have the ability to go both long and short. However, remember that leverage can magnify both profit and losses. Make sure you are aware of the risks of leveraged trading.
Leveraged trading can prove especially useful during a downturn. Most investors want to avoid a reshuffling of their portfolio as the costs can quickly add up and it is incredibly difficult to time the market correctly. Therefore, instead of selling a large part of your portfolio when you anticipate a correction, you could use derivatives to speculate on falling prices.
What are the DAX trading hours?
The DAX market hours are from 9 AM to 5:30 PM (Central European Time). Out-of-hours trading occurs from 5:30 PM to 10:00 PM and from 08:00 to 09:00.
The Dax Futures contract on the EUREX exchange is traded from 01:10 to 22:00 (Central European Time). The Cash Index - GER30 - can be traded from 18:00 Sunday to 16:59 Friday (New York Time) with a daily trading break from 16:59 - 18:00 (New York Time).
When trading the DAX 40, you should always be aware of market holidays, as these days usually see less liquidity and less trading volume.
Consider the following: Good Friday, Easter Monday, Labor Day, Ascension Day, Whit Monday, Corpus Christi, German Unity Day, Christmas and Boxing Day, and remember that while some holidays will only be observed by German traders, others might be followed by different traders around the world.
Explore our Germany 40
On our trading platform, we offer a derivative version of the DAX index to trade called the Germany 40. You can view our Germany 40 live price chart, seamlessly open and close trades, track your progress, and set up alerts.
What are the most popular DAX 40 trading strategies?
Day trading (including scalping technique) and swing trading are among the most popular trading styles used to actively trade the DAX 40 over the short to medium term. While you will keep your positions open for a few hours with day trading, you can hold them from a few days to a few weeks with swing trading.
Usually, active traders rely on technical analysis to decide when to enter or exit the market. They can use breakout trading to spot when the German index breaks out above a resistance level or below a support level to open a position and take advantage of the strong price movement.
But they can also use other strategies, such as mean reversion trading, which is used to determine any overbought or oversold conditions that can trigger a price reversal, pushing the index to return to its mean.
News trading is also very popular when trading the DAX 40, such as when economic and geopolitical news that may impact the German economy are published.
If your time horizon is a bit longer than a day, you can also use a trend-following strategy to trade in the direction of the primary trend and ride the bullish or bearish momentum. This is called position trading and takes into consideration the fundamental outlook.
How to invest in DAX 40?
First is to try to replicate the index yourself, in a process known as indexing. This way, you can create your own portfolio of securities that best represents the DAX 40 index. The stocks and the weightings of your allocations would be the same as in the actual index, and the information about index components and their percentage weights is publicly available on several financial or investing websites.
Adjustments would have to be made periodically to reflect changes in the index. This stock investing method can be quite costly since it requires an investor to create an extensive portfolio and make hundreds of transactions a year.
Thus, Exchange Traded Funds (ETFs) are the most popular way to invest in the German index. It is more cost-effective than buying shares and the rebalancing is done frequently.
The largest DAX ETFs are:
- iShares Core DAX UCITS ETF
- Xtrackers DAX UCITS ETF
- Deka DAX UCITS ETF
The DAX ETFs with the lowest expense ratio are:
- Lyxor Core DAX
- XTrackers UCITS ETF
- Xtraders DAX UCITS ETF Income
Most DAX ETFs are similar and essentially just track the performance of the index. When comparing the different ETFs, investors usually look at the total expense ratio (TER) - i.e. how much it will cost to hold the ETF - as well as how much money the ETF has under management and where it is domiciled.
Explore our German stocks and ETFs
Our WebTrader platform and app offers the most important stocks listed on the German stock exchange as well as several ETFs that track the performance of the underlying Germany 40 index.
Trade on over 100 assets within the German stock market.
Sources:
- https://www.dzbank.com/content/dzbank/en/home/we-are-dz-bank/press/news_archive/2023/dz-bank-research---outlook-2024.html
- https://www.boersen-zeitung.de/english/dax-set-to-increase-noticeably-in-2024
- https://www.investopedia.com/ask/answers/how-to-invest-in-an-index/
- https://www.boerse-frankfurt.de/indices/dax