Dax breaks new (high-scoring) mark - Peak attainment by Dax: new milestone achieved
In Frankfurt am Main, the German benchmark index, DAX, reached an unprecedented peak of 24,161 points on Tuesday. This marks a year-to-date gain of nearly 21 percent for the DAX, while US markets have seen a downturn.
As US markets remained closed due to a holiday on Monday, investors keenly awaited their reopening, expecting gains. This anticipation is largely due to US President Donald Trump's temporary reprieve from his latest tariff threat, which could potentially alleviate trade concerns.
Defense stocks emerged as a significant focus, with many reaching record highs. The continued stalemate in the Ukraine war has kept defense stocks in the limelight, amid discussions among NATO countries regarding potential increases in defense spending up to five percent of GDP. Germany's Chancellor Friedrich Merz (CDU) recently announced the relaxation of restrictions on the use of German weapons in response to the ongoing crisis.
Three notable German defense stocks, Rheinmetall in the DAX and Renk and Hensoldt in the MDax, experienced a strong performance, reaching new highs. Rheinmetall's share price climbed to as much as 1,883 euros in early trading. Since the beginning of the year, these defense stocks have more than tripled in value, surpassing their previous highs.
A planned debt package in Germany, set to finance infrastructure and climate protection projects, is said to be bolstering investor confidence. The package amounts to up to 500 billion euros. Despite the trade conflict between the US and China, which had been weighing heavily on global markets, there are signs of easing geopolitical tensions. However, experts urge caution against premature optimism, as it remains uncertain if trade relations between the US and China will normalize.
The surge on the stock markets stands in stark contrast to the ongoing economic crisis in Germany. Investors often focus on potential future profits rather than current economic conditions, particularly when it comes to the internationally oriented companies listed in the DAX, which generate a majority of their revenues abroad.
European stocks have risen more significantly this year compared to their US counterparts, attributed mainly to strong company results, the European Central Bank's continued equity-friendly monetary policy, and comparatively lower stock valuations in Europe.
The rally on the stock market is also driven by expectations of falling interest rates in the eurozone, which the European Central Bank aims to boost to stimulate the economy. Inflation concerns have recently eased, and many economists anticipate lower interest rates in the coming months. This reduction in interest rates could make stocks more attractive compared to fixed-income securities, making borrowing cheaper for companies and reducing the cost of home loans for homebuyers, supporting overall economic growth.
Enrichment Data: Defense stocks like Rheinmetall have benefited from increased demand, government spending, positive market sentiment, and strong financial performance, which have contributed to their record highs amid geopolitical tensions. This growth is partly due to Rheinmetall's ability to capitalize on the growing demand for defense products, receive more contracts and orders due to increased government spending, benefit from positive market sentiment and analyst expectations, and demonstrate robust growth and investor confidence with its strong financial performance.
The Commission's proposal for a Council regulation on the protection of the environment could potentially see an increased allocation of funds towards sustainable projects, which may attract investors are looking for environmentally-friendly investment options in the stock-market. The rise in defense stocks like Rheinmetall, fueled by increased demand, government spending, positive market sentiment, and strong financial performance, could also attract finance, as these stocks are considered a stable and profitable investment option, particularly during times of geopolitical tension.
