The German DAX Index (DAX) is an index of the 40 largest companies listed on the Frankfurt Stock Exchange. It’s similar to the Dow Jones Index in the U.S., but not as large. This index was created in 2007 to help investors participate in the performance of the large and medium sized companies that make up the German economy. Historically, the DAX has delivered a poor performance, but recent efforts have been successful. However, there’s still room for improvement.
Earlier this week, the market saw its biggest rally in five months. Although some of the gains were short-lived, it’s still a solid improvement on the prior week’s performance. While the trade dispute between China and the United States continues to drag on, there are still positive signs in the economic data. Industrials and retail sentiment are also pointing to growth in the near term. But the economy is not yet in full gear. A trade war could jeopardize the already fragile manufacturing sector.
Today’s session saw the DAX climb for the third straight day. As of this writing, the index is trading above its 200-day moving average. With the holiday season underway, trading volumes have decreased. Investors are waiting for the festivities to wind down. Nevertheless, the DAX’s best days are likely to come.
While there are a host of factors to consider, the DAX’s biggest success story has been lower energy prices. Despite a very warm winter, the average gas storage in Europe is roughly 80% of its normal levels. And since the price of natural gas is expected to rise in the coming months, this may prove to be a double-edged sword for European economies.
There’s also the matter of comparing the DAX’s recent performance to its historical record. During the same period, the German auto industry lost a little bit of steam. Supply shortages prompted a decline in output by 17.5% in August. Still, despite the weakness, the automobile industry’s overall output is not far behind the previous year’s levels. If the current trend continues, the German automotive sector could actually show improved performance in the coming months.
Lastly, the market also noticed the DAX’s big win in the e-commerce space. In an effort to boost the economy and encourage consumers to shop online, the German government has launched a program to provide low-cost credit for consumers to shop for goods and services from home.
While the DAX has remained largely untouched in the first half of the year, the market has found its footing as investors take advantage of the latest economic data. On the other hand, trade tensions are putting pressure on European automakers. Among the top performers were Rheinmetall, which announced plans to acquire Expal Systems, a Spanish explosives and ammunition firm.
Overall, the DAX’s recovery has been a welcome sight after an ugly start to the year. The DAX’s recent success is a reminder of the value of a well-managed portfolio. However, investors must remember that a recession takes time to form. And with the looming risk of a global slowdown, any improvement in the economy’s performance is likely to be limited.