Weekly outlook: “DAX valuation in expensive zone”

'Valuations are already high'

“As pleasing as the initial view of the past few weeks may be, it is not entirely unclouded,” says Sören Hettler from DZ Bank. The price increase in all indices is almost exclusively due to an improvement in sentiment - and by no means to higher earnings estimates. The valuation level is now correspondingly higher. The P/E ratio of the DAX has recently climbed into “expensive territory”, the Euro Stoxx 50 is well above the historical average and the S&P 500 is even higher.

In addition, the focus is currently primarily on the positive aspects of Trump's economic policy. “Sweeping the challenges for the financial markets under the carpet is anything but advisable,” says Hettler. In the medium term, “not as bad as feared” must turn into “better than expected”. 

Technicals: “Setbacks to 21,000 points cannot be ruled out”

The technical chart picture is unclear. “In view of existing buy signals from indicators such as MACD and DMI, further price gains should be taken into account,” explains Ralf Umlauf from Helaba. However, there is currently no tailwind from interest rate speculation, neither in Germany nor in the USA. The signs of an overbought market situation on the part of RSI and Stochastic are also increasingly urging caution. “If these indicators no longer accompany further index highs, this could point to a correction risk,” emphasizes the analyst. Setbacks to 21,000 points cannot be ruled out. 

Central bank decisions, economic data and company reports

The new week brings numerous events. Firstly, ECB and US Federal Reserve decisions are on the agenda. In addition, a lot of data will be published, including on economic growth and inflation. Last but not least, this week is by far the most important of this reporting season, as DekaBank notes: “In the USA, around 38% of the market capitalization of the S&P 500 reports its quarterly figures, including five of the ‘Magnificent 7’,” explains chief economist Ulrich Kater. He continues to expect clearly positive surprises. In addition, the reporting season in the eurozone will start with the figures of the three most valuable companies, specifically LVMH, SAP and ASML. 

Important economic and business events of the week:

Monday, 27 January 

10.00 am. Germany: ifo Business Climate January.

Wednesday, 29 January

8.00 pm. USA: Interest rate decision by the US Federal Reserve. The Fed is likely to press the “pause button” and leave key interest rates unchanged, says Commerzbank. The target corridor for Fed Funds would thus remain at 4.25 to 4.50 percent. 

Thursday, 30 January 

11.00 am. Eurozone: GDP fourth quarter 2024 (1st estimate). Following the 0.4 percent increase in the third quarter, the eurozone economy is likely to have grown significantly less again in the fourth quarter, by 0.1 percent, according to Commerzbank. This is indicated by weak industrial production, lower retail sales and the low purchasing managers' indices.

2.15 pm. Eurozone: ECB interest rate decision. DekaBank expects the ECB to cut key interest rates again by 25 basis points. It will also signal further interest rate cuts - with optimistic comments on the achievement of the inflation target in the course of this year and the classification of its current monetary policy as still restrictive.

2.30 pm. USA: GDP fourth quarter (1st estimate). According to DekaBank, gross domestic product in the USA is likely to have increased relatively strongly in the final quarter. Once again, private consumption is primarily responsible for this. Growth for the year as a whole is expected to be 2.8%, slightly less than in 2023.

Friday, January 31

2.00 pm. Germany: Consumer prices January. After the German inflation rate had temporarily fallen well below the 2 percent mark in autumn, it was clearly above it again at 2.6 percent at the end of 2024, as Commerzbank emphasizes. It assumes that it remained at this level in January. Significantly higher energy prices, which also reflect a higher CO2 price, are likely to have contributed to this. 

2.30 pm. USA: Price index for consumer spending excluding food and energy. Helaba forecasts an increase of 0.3 percent month-on-month and 2.6 percent year-on-year for the index, which is closely watched by the US Federal Reserve. 

By: Anna-Maria Borse, 27 January 2025, © Deutsche Börse AG