After a late rally in 2023, further gains on European stock exchanges in the new year will not be a sure-fire success.
Key interest rate cuts are likely to be a foregone conclusion in 2024, but it remains unclear when they will actually come and how many there will be. The German leading index DAX 40 and the Eurozone leading barometer EURO STOXX 50 must therefore first justify their high level.
However, experts mostly agree that further price gains are possible on the stock exchanges in 2024. “Despite the very strong development of stocks in the last few weeks, we are also positive for the stock year 2024 as a whole,” says analyst Frank Wohlgemuth from National Bank, looking ahead optimistically.
The fundamental drivers for Wohlgemuth are probably more expansive again monetary policy the US Federal Reserve and the European Central Bank (ECB). “It has been clear in history: the liquidity supply to the economy and the capital markets by central banks is the central benchmark for performance on the stock markets – often even before the company figures,” explains Wohlgemuth. Under these circumstances, “the traffic lights for the 2024 stock year are clearly green.”
However, the DAX first has to maintain its annual increase, which has recently grown to around a fifth in a year-end rally. 2023 was a very good year for the stock market, as growth in the 20 percent range has only occurred once since 2014. While the German leading index has reached a record level with a brief jump above the 17,000 point mark, uncertainties remain, especially with regard to economic developments.
When interest rates will fall again depends, in addition to inflation, primarily on economic developments. Experts in Germany are hoping for at least slight economic growth in 2024. Deutsche Bank expects a year of transition in which the economy will seek its new equilibrium. The bank’s economists assume that a possible interim recession will be mild and pass quickly.
“Growth should be positive again by the middle of the year and inflation should fall to the target value more quickly than expected by the European Central Bank,” says Deutsche Bank’s outlook. Inflation had increased in November Eurozone significantly reduced to 2.4 percent, the target value is two percent.
However, investment boss Jan Viebig from the Oddo BHF bank warned that market participants “like to fall from one extreme to the other”. He considers interest rate cuts of 1.25 percentage points in the USA and 1.5 percentage points in the Eurozone, which have recently already been priced in on the market, to be a bit too aggressive given the still quite high core inflation rates, which ignore fluctuating prices for food and energy . Recently, the ECB gave some overly optimistic investors a lesson: Unlike the US Federal Reserve, the Europeans have not yet openly admitted to discussing interest rate cuts.
Viebig believes in “balanced opportunities and risks in stocks” and advises investors to be selective and also add bonds for improved returns. The expert prefers quality stocks from the technology, health and luxury sectors. Chief investment strategist Ulrich Stephan from Deutsche Bank, however, prefers industrial stocks, cyclical consumer stocks and financial stocks.
From a chart perspective, there is no resistance in the way of the DAX at its record level. The longer-term upward trend channel and projections certainly allow for room to reach a good 19,000 points. However, there are corresponding risks. The lower limit of the channel is currently around 14,200 meters and the trend is rising. Growth in the size range of more than 20 percent seems difficult. Since the turn of the millennium, the DAX has rarely managed to show such strong momentum in consecutive years.
Forecasts suggest single-digit percentage increases for the DAX. DZ Bank and Landesbank Helaba each see the German leading index at 17,500 points in one year, which implies a rather moderate increase of 4.3 percent based on the level shortly before Christmas. The DZ experts are a little more confident about the EuroStoxx with a target of 4800 points. This would correspond to an increase of 5.7 percent.
Stock marketers do not attach any particular importance to geopolitical tensions such as the wars in Gaza and Ukraine for price developments in the coming months – at least based on current developments. According to the National Bank expert Wohlgemuth, these usually only cause price fluctuations in initial reactions, as they are initially overestimated. “As a rule, the capital markets only react to immediate disaster news; such tensions only play a subordinate role in the further course,” says the expert.
A major political event that is likely to play a role on the capital markets later in the year is the presidential election in the USA in November – with the outcome currently completely uncertain. A return from Donald Trump going to the White House would certainly lead to significantly greater nervousness not only on the capital markets, but also there, explains Wohlgemuth. When Trump won the election in 2016, the irritation on both sides of the Atlantic was short-lived: After that, the DAX gained more than 3,000 points within twelve months.
FRANKFURT/PARIS (dpa-AFX)