If you need an example to the adage that the stock market is not the economy, the DAX is one fine example of that. Since last year already, analysts have warned about a potentially more trying time for the German benchmark index. And that largely has to do with a struggling economic outlook. Yet, here we are with the DAX now up nearly 19% this year and hitting fresh record highs today.
Besides French stocks, most major indices in Europe have enjoyed a spell of gains this year with the ECB easing monetary policy. The DAX though has not only been stunningly resilient, but is continuing to scale higher even amid tougher times.
The German economy is arguably one of the worst performing ones in Europe amid the constant manufacturing recession. And with conditions looking rather bleak heading into year-end and with Trump tariffs looming over the horizon, the outlook is shaping up to be rather dire. Yet, investors are not breaking.
The DAX itself comprises of mostly exporters, so that is arguably one reason why the benchmark index is heavily outperforming. If you look at its sister mid-cap index, it isn't doing as well and is down 3% on the year as a whole. That arguably shows how detached the DAX is from anything more closely related to the German economic performance.
That said, the overall resilience in the DAX is still quite stunning. That especially when you consider how much the auto industry has been in a slump.
As much as I wouldn't be preferring to stick with European indices going into next year, this is one that is hard to ignore. The DAX has been ruled out so many times over the past year and yet, it continues to defy the odds. I want to say that Wall Street performing as it is also has helped with broader equities sentiment in general though.
But until that changes, perhaps this is just one of those things that investors and traders have to accept. And that is the idea that the stock market is not the economy.
