On Tuesday, 4th of December DAX crossed the 20,000 mile marker for the first time in history since its inauguration back on July 1st of 1988. It has surprised the investment world as Germany doesn’t have the best economic forecast. The reason for its upward trend can be credited to the slow recovery as people are more inclined to invest in the equity market.
At the time of writing the DAX index was hovering around 20,020 up by almost 0.5% in a single day. Over the last 5 days the index grew by 4%. The acclivity has contributed to a 20.17% growth in a single year. It is expected to grow further into the 20,000 zone, creating a resistance at the 20,000 base.
The DAX consists of 40 large corporations of Germany that are traded publicly. Top performers of the market are BMW, Siemens and Deutsche Bank, on average their stock surged more than 2.5%.
Even though the impending recession was nearing, Germany was able to avoid recession during the third quarter of the year by a slight margin. But analysis gives a grim outlook that Germany won’t be able to escape the grip of recession this winter. So surely the gain on the DAX is a huge positive coming from the top economy of Europe.
This is partly due to the industrial giants laying off people to cut back on expenses. Companies such as Bosch and Thyssenkrupp have announced plans to cut back on its manpower. Then there is the grim outlook of Volkswagen. The giant automaker has been shutting down production plants. Consequently thousands lost their jobs in the process.
But all hope is not lost yet. As the Chinese economy recovers, an export heavy economy gleams on the horizon to return. The stock that had the biggest impact was SAP SE due to its technological advantages with chips, artificial intelligence and cloud based computing. The stock contributed nearly third of the gain.
Even with the reining of inflation, the stock market is still the best place for getting better returns. So a weak economy is a driving factor for strengthening the equity market. Companies can borrow more at cheaper rates as the Euro weakens. This in turn will boost the economy. Moreover the return of the export based economy will alleviate the stagnation.