Last month, German stocks powered the DAX(GDAXI) to a new all-time high, breaking the psychological barrier of 12,000 points. However, the index quickly retreated back below the 12,000 point mark before vaulting itself up again last week to almost 12,400 points. So with Germany’s economy still moving sluggishly and the fate of the euro zone still up in the air surrounding Greece, how are German stocks doing it?
Investor sentiment
Investor sentiment is really what it comes down to. There are several ways to analyze and quantify how the stock market is doing. Analysts spend hours a day doing fundamental analysis and looking at cycles and technical analyses. But as much as analysts would hate to admit it, the fundamentals of the market are the foundation, but investor sentiment is what creates the momentum, whether it’s upward or downward.
And that scares economists, who live and die by the thought that markets act rationally and aren’t overly influenced by irrational human thought. One DZ Bank economist Christian Kahler said, “Such a rally is anything but healthy.†Does he have a point? Maybe. But after a short lull for a few weeks, the DAX is back on its upward climb.
External factors
Some analysts also believe that the renewed rise can also be attributed to the European Central Bank’s bond-buying program. With large amounts of money being pumped into the market on a large scale, they believe that most of that money has gone to buy shares.
Another reason for investors to be high on the DAX is the weakened euro. As it inches closer and closer to parity with the US Dollar, German companies that rely heavily on exports are the biggest winners. Low oil prices have also fueled confidence that German companies are banking more in their bottom lines.
Should investors worry?
But while it may seem that the DAX is still going strong, investors should still be wary. Why? Because of investor sentiment. If you take a look at the first quarter of 2015, the DAX logged a 22% gain, the strongest quarter it’s had in over a decade. So what does that mean? Well, it means that investors might start cashing in on their gains.
