DAX targets record high as technology stocks remain under pressure

The DAX briefly surged to a new record high in overnight trading on off-exchange platforms, and today could see the index officially establish a fresh all-time high. Initially, however, investors in Frankfurt are likely to take a more measured approach as they digest the strong gains of recent trading sessions. Nevertheless, the overall market backdrop remains favourable. Risk appetite has increased significantly following shifts in several key political and economic parameters resulting from the new balance of power in the United States.

Falling energy prices ease inflation concerns

Investors are particularly reassessing the outlook for the Middle East. Hopes of a change in political dynamics and a potential easing of the conflict have put considerable downward pressure on energy prices. As a result, inflation concerns are also beginning to recede, at least for now. Investors are unwinding risk premiums that weighed heavily on equity markets just a few days ago.

Chip stocks remain under pressure

However, not all sectors are benefiting equally from the improvement in sentiment. Scepticism remains particularly pronounced towards semiconductor and artificial intelligence (AI) companies. The prospect of a slowdown in the expansion of US data centres is raising fresh questions about future demand for high-performance chips. These concerns have also carried over into Asian trading, weighing particularly heavily on semiconductor stocks in South Korea and Japan. While the outlook for many traditional industrial companies is improving, the former driving forces behind the equity market rally must once again prove that they can live up to their lofty expectations.

German earnings broaden support for the DAX

Nevertheless, the overall backdrop for German equities remains constructive. Several major companies, including Deutsche Telekom, Siemens Healthineers, Commerzbank and DHL, have reported their quarterly results. Deutsche Telekom's announced dividend increase and share buyback programme, in particular, are likely to be well received by investors. Commerzbank has also impressed with better-than-expected quarterly earnings. The earnings season therefore continues to provide fundamental support for the DAX's recent strength, demonstrating that the upward trend is increasingly being driven by a broader range of companies.

BoE decision and US jobs data in focus

Later in the session, attention will turn to US labour market data and the Bank of England's (BoE) interest rate decision. German industrial orders and manufacturing turnover figures are also likely to attract interest. Against this backdrop, today's trading session could initially be characterised by consolidation. Following the rapid advance, a pause for breath would be neither surprising nor a sign of weakness. What matters now is whether the recent sharp decline in energy prices and easing inflation concerns can deliver a lasting improvement in the economic outlook. Equity markets have already priced in much of this optimism. The fundamentals must now catch up if the relief rally is to develop into a sustainable upward trend.