DAX opens the door to a year-end rally as markets welcome US midterm results

With today's decisive break above the 26,000-point mark, the DAX has significantly improved its chances of staging a year-end rally. After weeks dominated by inflation concerns, rising bond yields and geopolitical uncertainty, investors appear increasingly willing to take on greater risks following the US midterm elections. What initially triggered considerable uncertainty is now being viewed in a more nuanced light. The changed balance of political power in Washington could impose greater fiscal discipline on the US government, potentially easing at least some concerns about spiralling public debt and persistently elevated long-term bond yields.

De-escalation hopes could ease energy pressures

A new dynamic could also emerge in the Middle East. Investors are betting that changing political circumstances could improve the prospects for a de-escalation of the conflict. A sustained decline in energy prices would not only reduce inflationary pressures but also improve the earnings outlook for many companies. At the same time, it could give central banks greater room for manoeuvre on monetary policy. For equity markets, the combination of easing cost pressures and diminishing interest rate risks would be particularly favourable.

German earnings support recovery hopes

Investors are also drawing renewed confidence from a series of convincing quarterly results among DAX companies. Heidelberg Materials, Scout24 and Continental, in particular, have attracted buying interest with their earnings figures, demonstrating that German companies can still deliver positive surprises despite the challenging economic environment. Furthermore, Germany's purchasing managers' index (PMI) continues to signal growth, reinforcing hopes of a broad-based economic recovery. Even elevated energy prices have so far failed to derail this development significantly. Investors are increasingly betting that the German economy will regain momentum next year. The stock market is already beginning to price in the anticipated economic recovery of 2027.

Sector rotation broadens market support

Another supportive factor is the pronounced sector rotation seen recently. While highly valued technology and artificial intelligence (AI) stocks have suffered substantial corrections in some cases, other sectors have largely offset these losses at the broader market level. This has put the market's upward trend on a broader footing. At the same time, some technology stocks that were previously in particularly strong demand are beginning to look more attractive again following their recent declines. Should buying interest return to these names as well, the next leg of the rally could gather additional momentum.