A good two months after jumping to a record high, reality has caught up with the Dax. After the German leading index ignored bad news such as rising interest rates, high inflation or a weak economy for a long time, the pressure to adapt has now become too great.

Compared to the record of 16,528 points reached at the end of July, the stock market barometer has lost up to 8.5 percent. As things stand, there is still a double-digit percentage increase in the annual balance sheet.

First strong, then noticeably lessened

The development of the DAX since the beginning of the year can be summarized simply: initially strong, then noticeably weakening. While there was an increase of more than twelve percent in the first quarter, it was only a good three percent in the second. The Dax has even lost money since the end of June.

“The third quarter showed that the upside potential for stocks is currently limited,” says investment strategist Ulrich Urbahn from the private bank Berenberg. This is due, among other things, to the fact that many investors allowed themselves to be forced into the market after the strong price increases in the first half of the year. This means that there are now fewer and fewer buyers who are willing to buy in at this high level.

Bad news for shareholders

At the end of July there was still great hope that the latest interest rate hikes by the US Federal Reserve and the European Central Bank would soon reach their respective interest rate peaks. But capital market yields have continued to rise recently, signaling investors’ belief that the central bankers may not have finished the fight against rapidly rising prices. The main concern at the moment is the rise in oil prices, which could dampen overall economic activity.

This is bad news for shareholders, after all, interest-bearing investments have long since become an alternative again. In addition to bonds, traditional forms of savings such as daily or fixed-term deposits are currently attractive.

In addition, high interest rates choke off economic activity because they make investments, loans and housing more expensive. Compared to other European countries, Germany is particularly suffering from the current situation, as excessive bureaucracy, a significant investment backlog and problems in the education sector are slowing down the economy. This is how the hoped-for recovery in the economy failed in the spring. Recently, the term “Sick Man of Europe” was even used by the British magazine “Economist” to describe Germany at the turn of the millennium.

Experts: Better prospects at the end of the year

But despite these gloomy prospects, experts say the DAX will no longer come under too much pressure by the end of the year. “In the short term, the US Federal Reserve will continue its verbal fight against price increases in order to keep inflation expectations down with words but not with actions,” argues market analyst Robert Halver from Baader Bank. “The positive news, however, is that rising (credit) interest rates are taking the pressure off inflation, which suggests that interest rates will flatten again at the end of the year and thus higher share prices.”

Berenberg expert Urbahn believes a moderate setback in the next few months, followed by a volatile sideways movement, is the most likely scenario. Recently, the economic data in Europe surprised more negatively than in the USA, but this could be reversed – not least because Europe is likely to feel less headwind from the currency side. The euro, which has been weakening for months, can make exports to other European countries cheaper. This is seen as positive for strongly export-oriented companies.

Analyst Markus Reinwand from Landesbank Hessen-Thüringen is also convinced that economic activity could soon pick up again. In his opinion, the recent stabilization of the expectations component of the Ifo business climate index could be an initial indication that economic sentiment has reached its lowest point.

Sven Streibel, chief equity strategist at DZ Bank, sums up: “We see the recent misery as just a normal correction after an unexpectedly successful year on the stock market. The chance of an end-of-year rally is still more than there.”