Where will the DAX be in six months?

The question of the development of the German stock index DAX40 is occupying investors, analysts, and traders around the world. Not surprisingly, whoever manages to correctly predict the price development of this index has the opportunity to monetize on it quite well.

However, while predictions of this type are very popular and interest in them is unlikely to wane, it is also true that estimating the performance of financial markets is a very tricky business and one that many renowned economists have learned the hard way.

In this article, we will explain why these predictions are difficult and what success rates they achieve. We will analyze the current state of the German economy and show which companies are currently the main drivers of the German DAX. Then, at the end of the article, we will summarize all the data and try to predict possible scenarios for the DAX in the next 6 months on our own.

This article contains very valuable information, especially for swing traders who try to profit from longer time frames and longer-term trends in stock indices. If you would like to learn how to trade stock indices in this way, we recommend downloading our ebook - How to trade stock indices.

What is the success rate of long-term market forecasts?

In the book How to Get Rid of Fear by well-known coach Marian Jelinek and Jiri Kuchar, it is reported that the oracle Shakuntala Devi was able to guess the twenty-third root of a two-hundred-digit number faster than an IBM computer at MIT in 1982. When asked how she did it, she said that the number existed somewhere in the universe and that she had therefore just copied it.

By the same token, it shouldn't be a problem to search the universe for the data of where the DAX market will be in six months if it's just written there somewhere, isn't it? Unfortunately, there are no studies on how oracles manage to predict values from financial markets with their extra-sensory abilities. Instead, we have studies that demonstrate the difficulty of such a task when done by educated analysts.

For example, CXO Advisory Group, which examined a sample of 6,584 predictions of US stock market performance from 2005-2012 from 68 experts, concluded that the average accuracy of financial analysts' predictions was only 47%, meaning they were wrong more than half the time. That said, a coin flip would have been a slightly better alternative.

A similar conclusion was offered by a study by Philip Tetlock, a professor at the University of Pennsylvania, which showed that experts are often no different from random guessers in their predictions in their fields.

Financial markets are, in short, complex systems in which many factors - macroeconomic, technical, psychological, geopolitical, etc. - are at work. These factors are often at odds with each other. So the question arises: is there any point in trying to predict developments? Yes and no, it depends on the perspective. Since it is generally the journey, not the destination, that is important, we have concluded that, despite the difficulties, it may be worthwhile to attempt an expert forecast of the DAX. And that is what we will do!

Current situation on the DAX index (August 2024)

Let's take a look at the long-term development of the DAX index, which we can see on the monthly chart.

_{DAX index on the monthly chart}

We can see that the primary trend of the index is upward as higher highs and higher lows are formed. Pullbacks - corrections in which it is profitable to buy the index - are then formed within the rising trend. Resistance is the most recent all-time high, which is at 18,931. Strong support is around 16,000.

The German economy and possible risks

According to the latest data, the German economy unexpectedly contracted by 0.1% in the second quarter of 2024, down from growth of 0.2% in the first three months of the year and against forecasts of 0.1%. In particular, there was a decline in investment in equipment and buildings as the industrial sector remains particularly burdened by high interest rates. However, these should start to slowly decrease.

On a year-on-year basis, the economy also contracted by 0.1% after a downwardly revised 0.1% contraction in the previous period, marking the fifth consecutive quarter of no growth.

Inflation moderated markedly and is expected to reach 2.2% this year and 1.9% in 2025. The labour market remains relatively strong, but the problem is rising unemployment, which currently stands at 6% and will fall only slightly to 5.8% in 2025.

Overall, the European Commission expects the German economy to grow by 0.1% in 2024 and to rebound from a 0.3% contraction in 2023, as domestic demand is expected to grow slowly and exports also gradually increase. On the other hand, investment is projected to remain well below pre-pandemic levels, mainly due to the current high financing costs.

Main risk factors of the German economy

Vulnerability to global demand is a risk for the German economy and weaker growth in China in particular is negatively affecting exports. The threat of a recession in the US also remains an obstacle. Despite the fact that these fears have diminished considerably in the last few days and some economists foresee a "softer-than-soft soft landing", the threat of a recession is still not over.

Also, the trade war between China and the US or the ongoing war in Ukraine is negatively impacting economic growth.

The US presidential election will also have an impact on international markets. If Donald Trump, who threatens to impose across-the-board tariffs on everyone, is elected, this would be a negative signal for the DAX.

It is crucial for investors to monitor these events, as any increase in geopolitical tensions could lead to fluctuations in the value of the DAX.

In addition to the macroeconomic events mentioned above, other influences such as seasonality in the form of the Santa Claus rally and the January effect will affect the value of the index, which should more or less support the index in rising. By the end of February 2025, the results of some companies for the whole of the past year will also be known.

Be sure to keep an eye on the largest companies in the DAX index

As the DAX is an index that is calculated according to the market capitalization of individual companies, the biggest players, including SAP, Siemens, and Deutsche Telekom, which have performed very well so far, will have a decisive influence.

For example, SAP's latest quarterly results exceeded expectations, with sales up 9.7% year-on-year. Gross margins also improved and there was strong growth in operating profit, which was up 34.6% year-on-year.

_{SAP results}

SAP's announcement of growth in cloud orders is also positive news. This differentiates the company from some of its competitors, which have instead seen a softening in demand.

_{SAP shares on the monthly chart}

The great results are also reflected in the growth of the stock, which is creating new highs. The average target price over the next 12 months is 209 euros, according to investing.com.

Siemens also reported good results. While sales remained flat year-on-year, operating profit improved significantly, rising 14.1%.
 

_{Siemens results}

Siemens beat quarterly earnings estimates thanks to demand for power generation infrastructure and manufacturing software. However, the company also warned that some customers were hesitant to invest due to uncertainty over the cost of credit. The German train and factory equipment maker maintained its outlook for the full financial year, saying a wave of new customers for its microchip manufacturing and product design software was a one-off boost in the quarter.

_{Siemens shares on the monthly chart}

According to the chart, we can see that the solid performance is reflected in the share price, which is moving in an uptrend. In the last month, a minor pullback has occurred following the news of a mixed outlook in the digital segment. Analysts are forecasting a price of 197 euros over a 12-month horizon.

here is also a positive development at Deutsche Telekom, where sales rose 4.3% year-on-year and operating profit rose 15.8%.

_{Deutsche Telekom results}

The company expects its adjusted EBITDA to reach approximately EUR 41.1 billion. Given these strong results, the company announced plans to increase its dividend to 77 euro cents per share, up from last year's dividend of 70 euro cents per share, along with a share buyback of up to €2 billion set for 2024.

_{Deutsche Telekom shares on the weekly chart}

From the chart, we can see that this stock is also in a clear uptrend. Analysts are forecasting a price of €27.8 over a 12-month horizon, implying an upside potential of around 11%.

Possible scenarios for the future development of the DAX stock index

Regarding the value of the index on 28 February 2025, we see three possible scenarios:

1. A new all-time high (probability of 50%)If the global economy recovers, Donald Trump does not become US President, there is no further escalation of the trade war with China and the ECB cuts interest rates, the DAX could see strong growth. In this scenario, the DAX could reach new all-time highs and exceed 19,000 points. In our opinion, this is the most likely scenario.

2. Neutral scenario (30% probability)​
   If there are no significant changes in the global economy and corporate results are mixed, the DAX may remain relatively stable. Investors could see modest growth or stagnation, leading to a relatively calm market without significant fluctuations.

3. Pessimistic scenario - DAX drops by more than 10% (20% probability)
   If the global economy falls into recession, geopolitical tensions increase, and Trump is elected president, the DAX could fall significantly. Of course, a black swan - i.e. a new, unexpected major event - could also come. In this case, investors should be prepared for volatility and the possibility that the index will be well below current levels six months from now. It could then fall as low as 16,000, where there is an area of strong support.

Conclusion

Predicting where the DAX index will be in six months is a challenging task that depends on many variables. With this article, we wanted to show the difficulties that accompany predicting the future value of the index, and we ourselves are curious to see if our estimate of a new all-time high as the most likely scenario comes true.

In any case, long-term investors should be prepared for different scenarios and actively monitor market developments. This can pay off handsomely if the opportunity arises to buy shares at a cheap price. Traders, on the other hand, could benefit from a swing strategy that can trade long-term trends skillfully. You will find just such a strategy in our ebook.