The DAX staged a strong rally heading into the weekend, climbing above 25,600 points. Cyclical automotive stocks attracted buyers, alongside defensive pharmaceutical and healthcare shares. Falling government bond yields supported the recovery by making equities more attractive. Investors are also betting that central banks will keep interest rates on hold for now, despite the latest inflation figures.
Elevated energy prices remain a headwind, but investors are treating the inflation threat with less alarm than in recent sessions. The rebound does not yet signal a fundamental shift in sentiment. Instead, markets appear to be unwinding some of the recent nervousness. A sustainable uptrend will require stronger fundamental reasons to buy.
On Wall Street, hopes of a sustained AI boom continue to support equity valuations. However, a handful of major technology companies are increasingly driving the rally. While the S&P 500 is trading just below its record highs, more than 200 of its constituents are down over 30%. Beneath the index's strong headline performance, the picture is considerably less encouraging.
Next week's earnings releases will provide another important test. Results from TSMC and ASML have offered some positive signals, but have not dispelled doubts about the returns from heavy investment in artificial intelligence. The major US hyperscalers now need to demonstrate that their large-scale investment programmes can generate earnings to justify the spending.
