The predicted end for the DAX rally is anticipated in 2025, according to recent analyses.
The predicted end for the DAX rally is anticipated in 2025, according to recent analyses.
Despite the global economic turmoil, the DAX has been thriving and even surpassed the 20,000-point threshold. Statistically, the stock market should be weaker by 2025. Various factors are offering hope, including the upcoming German federal election, a potential peace in Ukraine, and the new US president.
The current bull run on the German stock exchange is expected to come to an end soon, as per the predictions of financial analysts. The DAX climbed by approximately 20% each in 2023 and 2024, surpassing 20,000 points. The last time such a prolonged series of annual gains over 20% was seen was in the years 2005-2007 - just prior to the global economic crisis.
In a conventional situation, the financial experts polled by Reuters anticipate the DAX to rise by a maximum of 5% by December 2025. "I don't foresee another such extraordinary year, no question about it," states Jürgen Molnar, analyst at RoboMarkets. "At this moment, we're in a short-term, potentially even medium-term bubble, and it's bound to burst. The question is, for how long will it last?"
Significant events for the stock market year are already marked in the opening two months of the new year, with the inauguration of Donald Trump as US president on January 20 and the federal election on February 23. Primarily, the reforms announced by Trump are viewed as the foremost source of uncertainty for the stock market in the coming year. "During the first half of the year, the DAX could experience a substantial decline if Trump implements the expected tax cuts, deregulation, and tariffs," says Carsten Brzeski, chief economist at the Dutch banking group ING.
When will the tariffs be enforced?
The European economy, which is already weakened, is likely to experience further strain due to the imposition of new US import tariffs on European goods, affecting exports. However, the specific timing and percentages remain uncertain. Trump has hinted at his willingness to negotiate if other countries comply with him on other issues, such as drug policy and measures against illegal migration. "It's somewhat like reading tea leaves," says Christian Lips, chief economist of NordLB.
The implications of this matter are crucial for the DAX, as a significant number of companies listed in the German benchmark index generate a large portion of their profits in the US. "Each company must be analyzed individually," says Thomas Kruse, chief investment officer at Amundi Germany. For instance, Trump's tariffs are not an issue for companies that offer services or develop software in the US. "But if I'm a manufacturing company that has invested in Mexico, then I'm obviously affected."
Experts concur that the US economy will show a stronger growth compared to the European economy in 2025. As a result, the shares of active European companies in the US are likely to rise initially, according to experts at the private bank M.M. Warburg. "This could reverse later in the year if it becomes apparent that the effect of Trump's policies on the European economic development is not as severe as feared, and the tariffs marginally hamper the economic growth in the US."
The future development in China is also critical for the export-oriented German industry. Expert Kruse warns: "China is growing robustly in the final product sector. That implies Chinese companies are potentially even more competitors, not just buyers of our products, as they were in the years 2010-2020." At the same time, economic growth in the People's Republic is expected to slow down in the coming years.
There are also opportunities
Experts also see potential advantages. The interest rates of the European Central Bank (ECB) are likely to continue to decrease, while Trump's tariffs could drive inflation in the US higher, giving the US Federal Reserve less leeway to ease monetary policy. The resulting appreciation of the dollar could relatively support European companies, says Holger Schmieding, chief economist of the private bank Berenberg.
Another positive factor could be the federal election in February. After the collapse of the SPD-Green-FDP coalition, market participants are hoping for the formation of an economically oriented two-party government. This would particularly help companies that generate a major portion of their revenue in Germany. "We see potential, especially among smaller companies like those in the MDAX," says Luca Paolini, chief strategist at asset manager Pictet.
Investors are also keeping an eye on the possibility of a ceasefire in the war between Russia and Ukraine. "Both countries are quite strong and tired of the conflict," says Kruse. "And if you read between the lines, it almost sounds like neither is particularly averse to talks. But it's still too early to name any results or even a timeline."
The potential peace in Ukraine could significantly impact the global markets, including Germany, as many German companies have business interests in the region.
Furthermore, the future economic growth in China is crucial for the export-oriented German industry. Chinese companies are not only potential buyers but also growing competitors in the final product sector, posing a challenge to German companies.