New DAX record: More illusion than reality?

So now it has happened after all: The German economy is in recession because, contrary to initial estimates, GDP fell by 0.3 percent in the first quarter compared with the previous quarter. Since there was also a minus of 0.5 percent in Q4 2022, the technical criterion for a recession is fulfilled. Despite the fierce headwinds caused by weak economic data, a still far too high inflation rate and the more restrictive monetary policy of central banks, the DAX has gained almost 14 percent this year and even reached a new record of 16,332 points last week. Many investors are asking themselves how this could have happened in view of the current news situation and whether there is already another irrational exuberance on the stock market that must inevitably lead to a painful correction or a crash.

Despite the current widespread skepticism towards stocks, it should be noted that the reporting season for the first quarter resulted in a large number of positive earnings and sales surprises. Not only in the USA, but also in Europe, more companies than usual were able to exceed their expectations. The necessary adjustments to earnings estimates by company analysts have resulted in forward earnings, i.e. the corporate profits expected for the coming 12 months, for the DAX and the Euro Stoxx 50 rising to a record level. In this respect, the record stock prices are not a great surprise, as share prices are primarily based on corporate earnings.