With profit performance in 2018 defined in many instances by exceptional effects among DAX companies, we expect an improved profit situation again in 2019. Nonetheless, current analysts’ estimates projecting (another) ten percent increase in profits at DAX companies in 2019 could be overoptimistic once again. We see a five percent rise in DAX profits as a more realistic scenario. The same goes for the Euro Stoxx 50. Although we do not envisage any escalation of the negotiations surrounding Brexit and Italy, the sometimes unsettled economic and politic environment, which left its mark already in 2018 (reflected in a slowdown in growth in Europe and disruption in global trade, among other things), should continue to persist at the beginning of 2019.
We remain positive as regards the equity markets in 2019; on the one hand, important key variables such as a strong economy (tailwind from the US) and a favourable equity market valuation continue to hold sway, while, on the other hand, the latest stock market correction appears to be exaggerated on the downside.
Our first stock market forecast for year-end 2019 expects the DAX to rise to 13,300 points (Euro Stoxx 50: 3,550 points). This first formulated target for the DAX is based on our previous forecast for mid-2019; however, there is a half-year shift in the price recovery, especially because of the aforementioned 2018 “profit slump”.
Our trend forecast therefore outlines a seasonally strong last quarter of 2018, followed by a comparatively weak recovery in 2019 that correlates to the profit growth. In our opinion, the valuation parameters will not expand, since economic risks are likely to persist in 2019 and equities are facing increased competition from bonds, especially in the US.