Dax investors pick up again after setback

After a hiccup from its all-time high, the Dax bounced back at the crack of dawn on Friday, climbing 0.45% to 16,826.88 points. The MDax mid-cap index also joined in, climbing 0.34% to 27,291.11 points. The leading eurozone index, the EuroStoxx 50, showed a similar trend, rising 0.44%.

These upswings can be attributed to hints from the US Federal Reserve about potential interest rate reductions. The previous day, the Dax had touched the 17,000-point mark for the first time at the Frankfurt Stock Exchange, but momentum faded as the European Central Bank (ECB) expressed doubt about imminent interest rate drops. Regardless, the Dax's performance this week has been positive, with a 15% jump since the October low due to the year-end rally.

The Frankfurt Stock Exchange also features a notable event called the "big expiry" on its futures exchanges, which could cause prices to fluctuate during the day.

Now, let's delve a bit deeper into the Dax's current surge. The index has experienced several factors driving its performance:

1. Record Highs: The Dax has been on a roll, with a 9.4% gain in 2025 so far and a nearly 7% rise in the young stock market year 2025.
2. US Investments: The new Trump administration's investments in the USA, particularly in artificial intelligence, have boosted the Dax. The announcement of a $500 billion investment in data centers for AI has positively impacted stocks like Siemens Energy, which saw its shares skyrocket to a record high.
3. Interest Rate Cuts: The ECB is expected to continue its easing cycle with further interest rate cuts. The market anticipates a 0.25% cut in the key interest rate to 2.75%, with potential for additional cuts throughout the year. This is expected to support the stock market rally, as lower interest rates usually lead to higher bond prices and increased investor confidence.
4. Volatility Indices: Despite the upcoming German parliamentary elections, investors seem relatively unconcerned, as indicated by the low levels of the VDAX and VSTOXX volatility indices. These indices suggest a relaxed attitude among investors towards the election outcome.
5. DAX Structure: The existing structure of the Dax, which limits any single company's weight to 15%, is under scrutiny. This limitation could impact companies like SAP, which has a market capitalization exceeding EUR340 billion. To address this, Deutsche Börse is considering the introduction of a second DAX index that would allow for the representation of larger companies without the weight cap.
6. Global Exposure: The Dax is increasingly seen as a barometer of global trade rather than just the German domestic economy. Only 20% of DAX components’ sales are generated at home, while 24% of revenue is generated in the US. This global exposure makes it sensitive to international economic developments.

There you have it, a more detailed look at the factors driving the Dax's current surge. So, keep an eye on those price fluctuations during "big expiry" and who knows, you might catch the next record high!