The German DAX index sets an all-time record

On December 5, 2023, the German DAX stock index reached a historical record, exceeding the previous high set on July 31 of the same year. On a day of record gains, the index rose 0,8%, outpacing the broader STOXX 600 index, which rose 0,4%. In 2023 DAX index has already gained 17,8%.

Composition of the DAX Index

The DAX index consists of 40 leading German companies listed on the Frankfurt Stock Exchange. Its composition and the weight of each company in the index reflect the size and importance of companies in the German economy. One of the key features of the DAX index is that it is a dividend index. This means that its value reflects not only the share prices of its components, but also the dividends paid by these companies.  Below we present some of the key companies included in the DAX index that have achieved the highest and lowest rates of return since the beginning of the year:

ADIDAS - the company has gained 52,16% since the beginning of the year, RHEINMETALL increased by 51,93% and SAP by 51,43%. At the end of the scale there is BAYER with a decline of 34,74%, SIEMENS ENERGY with a price retreat of 34,17% and ZALANDO with a decline of 32,73%.

CHECK: Brokers with the best trading conditions on the DAX index [Summary]

Huge expectations for rate cuts in the euro zone could have helped DAX quotations

In the context of expectations regarding interest rate cuts by European Central Bank (ECB) in 2024, there is clear market confidence that the ECB may decide to cut interest rates during this period. These expectations rose to a new high, increasing 10 basis points to 140 basis points. Isabel Schnabel from the ECB described further interest rate increases as "rather unlikely", without ruling out the possibility of interest rate cuts by mid-2024.

In light of these comments, the short-term market has almost fully priced in a 25-point rate cut in March 2024. Currently, the market assumes four rate cuts until autumn 2024.

These predictions indicate a change in attitude EBC towards monetary policy, reflecting the growing economic and inflation challenges facing the euro area. Possible cuts in interest rates may be a reaction to the weakening economic situation or to slowing inflation. These decisions will have a significant impact on financial markets, including currency values ​​and bond yields, and may also influence further investment trends in the euro area.

Theoretical impact of rate cuts on the stock market - what can DAX discount?

When a central bank, such as the European Central Bank, decides to lower interest rates, this often has a positive impact on stock valuations in financial markets. Reducing interest rates reduces the cost of borrowing for businesses, allowing them to increase investment and potentially increase profits. In such an environment, stocks in theory become more attractive compared to bonds, which offer lower yields, which can increase demand for stocks and drive up their prices.

Moreover, lowering interest rates often stimulates the economy by increasing consumer and investment spending, which has a positive impact on companies' financial results. Companies can also benefit from better debt refinancing conditions, which improves their balance sheets and increases investment attractiveness.

Additionally, such a move by the central bank is often interpreted by investors as a signal of active support for the economy, which may increase optimism on the stock markets. Perhaps this is what the German DAX is discounting.