The German Dax stock market has hit record highs

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Germany’s Dax index rose to an intraday high on Friday as growing investor confidence in corporate earnings made it the second-best-performing major European stock market this year.

The index, which measures the 40 largest listed companies in Germany, added 0.9% to more than 16,320, surpassing its previous high of 16,290 set in November 2021.

Shares of Adidas and Siemens are up nearly a quarter this year as investors warmed to higher-than-expected corporate earnings, allowing the market to shrug off worries that Europe’s largest economy is on the verge of recession.

The Dax has returned 17.2% including dividends this year, slightly below France’s Cac 40’s 18% but well above the FTSE 100’s 6.2% return, according to Bloomberg data. Wall Street’s S&P 500 returned 10% over the same period, largely driven by gains in a select swathe of tech stocks.

The strong gains were “supporting the market’s resilience” and encouraging some investors “to become more optimistic about the outlook for [European] stocks,” Bank of America analysts said.

Agnès Belaisch, chief European strategist at Barings Investment Institute, said low unemployment rates have fostered relatively strong wage growth, “helping companies pass on much of cost increases to retail prices, protecting margins and providing surprisingly resilient earnings reports.”

US markets dominated by glitzy tech stocks have largely outperformed European markets over the past decade, but this trend has reversed since September.

Companies like Airbus and Mercedes-Benz are up 13% and 12% respectively this year as Dax benefits from cooling energy prices and China’s economic reopening.

However, these and other positive catalysts had now “largely petered out,” said analysts at Barclays, who singled out China’s “shaky” recovery and tighter credit conditions in the coming months as top concerns.

“Certainly not a fantastic and rosy macroeconomic picture is emerging [for the Dax], said Carsten Brzeski, an economist at Dutch bank ING. “Some financial markets are living a life of their own and have decoupled slightly from the gloomy macroeconomic environment, which is in no way conducive to record equity markets.”

The Dax hit its all-time high shortly after the latest Zew indicator – a measure of investor sentiment – fell into negative territory in May for the first time since December, falling 14.8 points to minus 10.7. The survey’s renewed weakness “points to weaker equity markets ahead,” European equity analysts at Morgan Stanley said.

German industrial production fell 3.4 percent in March from a month earlier, the biggest drop in 12 months, according to data released last week by the federal statistics office.

Eurozone inflation rose for the first time in six months to 7% in the year to April despite the ECB’s aggressive monetary tightening campaign. “But we still have negative real interest rates, which means there are no other alternatives to equities,” Brzeski said.