Dax is sitting at a record high – should you buy or sell?

Following the sharp increase in the prices of goods and services worldwide, central banks have tightened the monetary policy. Some faster than others, but overall financial conditions are tighter than a year ago and are forecast to remain so.

In light of such tightening, the stock market’s resilience is nothing short of remarkable. For instance, the German Dax index, the leading stock market index in Europe’s largest economy, is sitting at an all-time high.

Do fundamentals justify such a valuation? Definitely not.

First, the second quarter GDP in Germany has stagnated. Second, business sentiment declined further in July. Third, manufacturing activity data keeps contracting, reaching levels below 40. Finally, the European Central Bank has hiked the key interest rates several times.

And yet, the stock market trades at a fresh record high. Is it decoupled from the economic reality in Germany? Judging by the poor economic performance, it may be so,  but the stock market investors are forward-looking, so fighting the stock market might be risky. 

The technical picture shows a bullish price action likely to continue. While rising to a new all-time high, the Dax index formed a series of higher highs and higher lows.

A bullish channel is visible since the start of 2023, and while the market holds inside the channel, the bias remains bullish.

All in all, poor economic data does not seem to affect investors’ belief that Europe is the place to poor their funds. Germany, as the largest economy in the region, seems to be the place to start investing.

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