DAX risks recording an annual loss – when was the last time this happened?

There are still 68 days until New Year’s Eve, including 45 days for trading in shares at the stock exchange. Will the DAX succeed in compensating for the eleven percent price losses it has accumulated until now? Or might an annual loss be recorded again for the first time in many years?

Although the answer to this question is irrelevant for market players with a long-term investment horizon, it is still worth looking back at the past. Because the possibility of an annual loss being recorded cannot be ruled out.

Since the index was launched in 1988, the DAX (including dividends) has gained 8.2% per year. There have only been eight years in which the German benchmark index closed with a negative performance. In the other 22 years, a price increase was chalked up at year-end.

The two years in the recent past in which an annual loss was recorded for the German benchmark index were 2008 and 2011. Previous years in which prices had at times been extremely volatile were 2000, 2001 and 2002.

Based on these annual rates, players familiar with capital market happenings can see at first glance that the bursting of the dotcom bubble in the years 2000 and 2001 had also sent ripples through the DAX. In 2002 and 2008, stock markets were rattled by shocks (delayed effects of 9/11 and the Lehman crisis) and the economic recessions following them.

Taking stock, there is nothing particularly surprising about stock markets closing a year with a negative result after the formation of a bubble or during periods of economic recession; these can in fact be considered typical reasons for a correction. But what was happening in 2011, the only „abnormal“ year in this time series given that there was neither a recession nor a bursting bubble?

In 2011, negotiations over raising the US sovereign debt ceiling came as a shock to stock markets from the summer onwards. A showdown of power took place between the Democrats and the Republicans, and it took until November for a major agreement to be reached, causing the DAX to fall in the meantime by 35%. Prior to this, a resurgence of the euro debt crisis had already been fuelling concerns, and Portugal had sought refuge under the EU’s emergency aid facility. German equities were no longer able to fully recuperate the high price losses by the end of the year and thus chalked up a loss of 15% for the year as a whole. Although the crisis put pressure on prices, the global economy had performed extremely well in 2011: in EMU, economic output grew by 1.6%, in Germany even by 3.0%.

The DAX therefore spiralled downwards without any „tangible“ reason. Rather, it was the fear that something might happen, such as a downslide into recession as a result of short-term spending freezes by governments.

There is therefore a realistic chance still that the DAX could recover at least some of the losses it has previously incurred in the further course of the year. At present, we do not expect a recession; nor can the current situation underlying capital markets be compared with the crisis surrounding the US sovereign debt ceiling in 2011 which led to significant upheavals on financial markets.

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