DAX in the grips of politicians – not the economy

  • We are for the first time publishing forecasts for the DAX and Euro Stoxx 50 for mid-2019 which read 14,200 points and 3,900 points respectively. This assumption is based on our macroeconomic and political baseline scenario “Italy does not trigger an EMU sovereign debt crisis 2.0”.
  • At the corporate level, rising profits, solid dividend growth and high returns on capital will further drive the bullish market underway since 2009. At the macro-level the synchronous performance of the global economy and the mix of low inflation and interest rates also helps.
  • The greatest risks remain of a political nature – however, to date we do not expect appreciable skid marks in the economy and the stock markets. Investors should therefore remain invested and/or exploit the current price weakness to buy.


By mid-year 2019 we expect the DAX to rise to 14,200 points (Euro Stoxx 50: 3,900 points), meaning by roughly 11 and 13 percent respectively. The main driver behind this trend: clearly rising corporate profits.

While framework conditions (growing political uncertainty oppresses investment sentiment, ECB raises key lending rates for the first time in the summer of 2019, Italy as a risk) are deteriorating, the ongoing dynamic growth in the global economy (DZ forecast of 3.6% real economic growth in both 2018 und 2019) corporate profits should again pick up appreciably.

The strong exporters among the companies listed on the DAX and Euro Stoxx 50 should see corporate profits rise in 2018/19 by an aggregated 14-18%. The growth in profits should also be reflected in price gains on a similar scale.

In our scenario, the valuation remains low. Should the DAX be at 14,200 points in one year’s time, on the basis of the current earnings estimates for 2019 this would spell a PER of 13.3 and one of 12.3 on the basis of the 2020 estimates – albeit the second estimate can be considered uncertain from today’s viewpoint. This constitutes a minor valuation markdown on a long-term comparison (PER13.1). This conservative approach seems justified given pending record profits in the current stock market cycle.

The Euro Stoxx 50 should perform similarly well (weighting of Italian securities 4.3%), although the US S&P 500 Index at present has the best starting conditions among the large international indices (the reasons: a more stable US economy, clearly higher weighting of profit drivers in the banking and technology sectors).

The high price of oil is a joker that could accelerate global profit growth in the stock markets, which in our opinion the stock markets underestimate. If the price remains at the current level for a longer period, this will on balance be a real fillip for the stock indices, because the weighting of those who benefit from rising oil prices (e.g., energy stocks) clearly outweighs the losers (e.g., the retailers and some industrial equities). This is especially true of the S&P 500, Stoxx 600 and Euro Stoxx 50 indices – but less so of the DAX.

Yields on ten-year Bunds remain below one percent in our interest-rate forecast with a view to the next 12 months. We also expect that from the perspective of the coming year, yields in Euroland will gradually rise, however the yield level will not initially exceed two percent, among other things thanks to weak inflationary trends and the ECB’s ongoing reinvestment policy for bonds on maturity. We therefore do not assume that investors will in the foreseeable future turn their back on the stock markets and migrate into the bond market.

Despite the Fed increasing key lending rates, US yields are likewise hardly rising further and remain historically speaking low at a level of around three percent. The relation between rising US yields and stock-market prices is complex and largely dependent on the individual equities concerned. Experiences of the last 30 years show that general pressure on the stock markets tends only to arise when US yields hit a level of five percent or more (see our study “Interest rate concerns exaggerated” of 8 February).

The major risks remain of a political nature. We do not at present discern any evidence for financial market risks as a result of over-valued asset markets (2000 – equities, 2007 – US properties). Even if on the world stage there are signs of things easing compared to the situation in February/March (although not in Italy) and the nail-biter as regards threatened trade sanctions seems now to be a thing of the past, such conflicts, like others (including Iran, North Korea) can flare up again as irritants. On balance, this will presumably strain investor sentiment although we do not expect this to cause any significant skid marks in the economy or the stock markets.

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