Status: 08/13/2021 2:26 p.m.
For the first time, the DAX exceeded the 16,000 point mark. There are good reasons for the record hunt. But the risks for the stock exchanges have not diminished.
At the end of the week, the DAX broke the 16,000 point mark for the first time and set a new record at 16,030 points. No question about it, the leading German index is currently on the move: It is already the third record high in three days.
This means that the DAX only needed five months to jump over the next thousand mark. It was only in March that the 30 German standard values broke the 15,000 point mark for the first time. Since the beginning of the year, the share price has increased by around 17 percent.
Inflation only “temporary”?
One reason for the development on the stock markets is the current US inflation data. In July, prices were 5.4 percent higher than a year ago. But prices rose more slowly than in June. Many investors interpret this as confirmation from the Federal Reserve. It sees rising inflation rates as a “temporary” phenomenon that does not force it to act immediately.
The market had recently had doubts about this reading. But according to the new data, many investors and analysts are now convinced that the price surge in the US may have already peaked. The result: the fear of market participants that the US Federal Reserve could prematurely abandon its ultra-loose monetary policy as a measure against galloping inflation is disappearing. The flood of money from the central banks is currently the most important price driver of the global stock markets, especially Wall Street.
New records also on Wall Street
So it is no wonder that the record rally in the DAX was preceded by new highs in the US leading index, the Dow Jones Industrial. The S&P 500 index, which represents the broader market, was also able to set new record highs recently.
The fact that companies mostly presented profits that were above expectations in the quarterly reports presented also contributed to the current development. Frank Klumpp from LBBW expects the “friendly environment for shares to remain in place for the time being, flanked by rising corporate profits”.
Record high as a buy signal
The tailwind for the DAX comes not only from Wall Street and the reporting season, but also from the technical side: With the breakout to a new record high, the German standard stocks send one of the best buy signals that technical analysis has to offer.
Because above such a record high there is naturally no resistance, i.e. price levels at which the sellers gained the upper hand in the past and the DAX turned down. The jump to a new record high is a clear sign of strength in this reading.
Problem child Asia
However, a look at Asia warns caution: There, the number of cases is rising rapidly in many countries, raising fears about measures and restrictions that could impair the economic recovery.
This is also shown by a look at the Asian indices, which clearly lag behind their European and US counterparts. The Japanese leading index Nikkei, for example, is currently around eight percent below its record high.
Drastic pandemic measures
“There are many more concerns about Delta because it affects many Asian economies where vaccination rates are lower,” said Ray Farris, Credit Suisse’s South Asia investment strategist recently.
The drastic pandemic measures taken in Asia, especially in China, could give rise to serious risks for the already attacked global supply chains, as this example shows: China had completely closed its second largest container port, Ningbo Maidong Terminal, in the middle of the week – due to the corona infection of a single employee.
Supply chains in danger again?
As a reminder: According to experts, the corona-related temporary closure of the Chinese commercial port Yantian in May and June had more serious consequences for global supply chains and flows of goods than the shipwreck in the Suez Canal.
The Asian problems could consequently – with a slight delay – also affect the economies in Europe and the USA. Then it will show whether the flood of money from the central banks is sufficient as the sole price driver to keep investors happy.
Is inflation still an issue?
Even on the ongoing flood of money from central banks, investors shouldn’t rely too much. In any case, the experts at Helaba warn in their weekly outlook that the latest price increases in July of 5.4 percent in the USA and 3.8 percent in Germany “do not give cause for the all-clear”.
Up along the “wall of worries”?
As much as these worries and fears urge caution with a view to the DAX record high, they are also the ones who could possibly keep the record rally alive. That sounds paradoxical – but it is not: As long as many investors remain fearful and skeptical, it is not possible to overshoot prices.
On the other hand, with every point increase in the DAX and Dow, the pain and fears of missing something increase among those who have not invested – until they finally re-enter the market. In the stock market jargon this phenomenon is called “Wall of Worry”.