DAX Outperforms European Peers Despite a Weak Economic Environment
Author: Taurex
Date: January 8, 2026
Economic Overview
Recent data indicates ongoing weakness in the German economy. The services Purchasing Managers’ Index (PMI) recorded a reading of 52.7, which, while slightly above expectations of 52.6, is lower than the previous reading of 53.1. Additionally, the year-on-year consumer price index (CPI) slowed to 1.8%, falling short of market expectations of 2.0% and down from the prior reading of 2.3%. Furthermore, German retail sales experienced a decline of 0.6% month-on-month, which was a sharper contraction than the anticipated -0.2%, following a previous increase of 0.3%.
DAX Performance
Despite the economic slowdown, German equities, particularly the DAX index, are performing well. The DAX reached a record high of 25,122 points, marking a 23% increase over the past year and a 2% rise year-to-date. This performance stands in contrast to other European equity benchmarks, such as France’s CAC 40, the UK’s FTSE 100, and the STOXX 600.
Factors Driving DAX Growth
Several factors are contributing to the positive momentum of German equities. Notably, the defense sector has seen significant gains, with shares rising approximately 154% last year and about 16% since the beginning of the current year. The banking sector has also benefited from optimism regarding a substantial fiscal stimulus package from the German government. Additionally, a decline in German government bond yields for three consecutive sessions has made equities more attractive compared to fixed-income instruments.
Future Outlook
Looking ahead, forecasts suggest that the DAX could reach 26,350 points by the end of 2026, indicating an annual upside of around 8%, according to a Bloomberg survey.
Technical Analysis
From a technical standpoint, indicators are supportive of the DAX's upward trend. The index has recently experienced a bullish “golden cross” between the 20-day and 50-day moving averages, signaling potential for further gains. The Relative Strength Index (RSI) is currently near 75, indicating strong positive momentum, although it is in overbought territory, which suggests caution regarding the risk of short-term corrections.