Economic Situation & strategy
September 8, 2023

Sleepy DAX - Comeback after summer break?

Article by Carsten Klude

September is traditionally the weakest month for the stock market. Since 1980, this month has had the highest probability of loss for the DAX, at nearly 60 percent. The DAX has been restrained in recent weeks, on the one hand, by weak economic data and, on the other hand, by concerns about persistently high inflation rates that could necessitate further interest rate hikes. However, Germany's economic weakness is not a sufficient reason to be pessimistic about the German stock market. Those who remember the 1990s know that Germany had a growth problem back then and was referred to as the "sick man of Europe" - just like today. Nevertheless, the performance of the DAX at that time was impressive. From early 1995 to the end of 1999, the DAX climbed from just over 2,000 to nearly 7,000 points - a gain of 230 percent in just five years.

More important for the DAX than German economic data, at least as long as the economic downturn does not significantly worsen, is the further development of inflation and the outlook for the monetary policy of the European Central Bank. Overall, earnings expectations for the next 12 months remain at record levels, which bodes well for further gains in the DAX by the end of the year. The DAX's price-earnings ratio (P/E ratio) based on these forecasts is not only very favorable in historical comparison but also the lowest P/E ratio this year. Together with the high expected dividend yield of 3.6 percent, the valuation factors of the DAX also do not argue against further gains - especially since the three seasonally best months for the stock market, October, November, and December, are still ahead of us. Therefore, we consider our target of 17,000 points for the DAX by the end of the year to be achievable.

Investors interested in the DAX should pay particular attention to developments in the US markets. Because that's where the action is, and that's where the crucial guidelines for German stocks come from. We see a particular risk for the next 12 to 15 months in the political development. A re-election of Donald Trump would likely lead to a new global trade war. However, political uncertainties do not only come from the US but also from Germany. Given the significant differences in content between the three coalition partners - the SPD, Greens, and FDP - it is questionable whether the Berlin coalition will survive the entire legislative period. Early federal elections could further complicate future government formation and also prove to be a burden on the stock market.