Weekly outlook: Great confidence on the stock markets

Ever weaker economic prospects and ever higher share prices. This is the environment in which the international stock markets are currently operating. Starting today, the DAX will have to defend its new record highs in a week dominated by a lot of news.

30 September 2024. FRANKFURT (Börse Frankfurt). “The festive mood on the financial markets continues despite the economic gloom in Germany": this is Helaba's conclusion for the past week. Although the leading economic institutes have downgraded their economic forecasts for 2024/2025, the DAX climbed to a new all-time high of 19,492 points on Friday. As the major US indices (with the exception of the Dow Jones, which rose to a new record high) weakened somewhat towards the end of the week, the index gave back some of its gains over the course of the day. The closing price of 19,473 points nevertheless gave the index a weekly gain of 4.0%. This means that September, which has often been a weak month on the stock markets in the past, is likely to post gains for the first time since 2019.

The stock markets have been supported by two main factors in recent days. Firstly, numerous inflation and economic data gave the markets renewed hope of interest rate cuts in the eurozone and the US. Secondly, after a long time, China once again put everyone in a good mood. According to Helaba, the Chinese government's extensive monetary and economic policy package has “electrified” investors. Among other things, low interest rates and liquidity are being used to counteract the economic weakness in China. An upturn in China would be particularly good news for German industry, which relies on exports in many areas.

The hope of falling interest rates is a boost

Commerzbank analysts are therefore of the opinion that the positive mood on the stock markets could continue. They also point to the “more positive key interest rate climate” and the fact that “the seasonally rather critical phase with profit warnings for the third quarter” will soon end. At the same time, they warn that a favorable “soft landing” scenario in the USA has already been discounted at current price levels. The economic data due this week will therefore need to be closely monitored.

Robert Halver from Baader Bank believes that the global economy is currently “between a recession and an upswing phase”. Equities would generally benefit from the interest rate cuts that typically occur in this environment. Looking ahead to the US reporting season for the third quarter, which is due to start shortly, the capital market expert expects hardly any potential for disappointment, but rather surprises for companies and their share prices due to the greatly reduced expectations in advance. “Particular attention should be paid to the outlook, which will brighten on balance”.

DAX relatively highly valued without the cars

The analysts at LBBW are not quite as optimistic. In their opinion, three risk factors in particular are likely to slow down the upward trend on the stock markets: in addition to the uncertainties surrounding the US election and economic concerns, the high valuation of the markets is also mentioned. And the strategists are not just referring to the USA. “The DAX is also not as cheap across the board as it seems”. Adjusted for the struggling car manufacturers, the DAX P/E ratio for the next 12 months is over 15 according to LBBW's calculations, which is higher than the long-term average.

Technical picture: Price targets beyond the 20,000-point mark

From a technical point of view, the German share index is looking very positive after jumping to new record highs. Marcel Mußler of Mußler-Briefe sees “very generous and, above all, slight upside potential” for the DAX following the “very successful and already sustainable” breakout. In a “consolidated trend-following long setup”, the upward trend channel currently running at 20,000-20,200 points and rising daily stands for the price targets in the final quarter starting tomorrow. From the bulls' point of view, the only thing that should be avoided is a fall below the breakout level of 18,893 points.

Robert Halver also believes that the ingredients for a continuation of the positive stock market trend are basically intact. He therefore believes that interim setbacks offer buying opportunities. Such opportunities could arise in the short term because the protection against falling prices is currently rather low. He sees the first important support levels at 19,150, 19,088 and 19,044 points. 

Important economic and business events of the week

Monday, 30 September 

2.00 pm. Germany: Consumer prices. The fall in energy prices is likely to have a positive impact on the inflation data for September published at the start of the week. Helaba expects the overall rate to rise by 1.8 percent year-on-year.

3.45 pm. USA: Chicago Purchasing Managers' Index. According to Commerzbank, the September reading of the national purchasing managers' indices will shed light on the progress of the US economy. After a value of 46.1 in the previous month, a slight increase to 46.8 is expected for September.

Tuesday, 1 October 

11.00 am. Eurozone: Consumer prices. The rate of inflation in the Eurozone is also likely to have weakened in September. The consensus expectation is for a fall to 2.0 percent. However, analysts fear that the core inflation rate, excluding energy and food, will remain relatively high at 2.7 to 2.8 percent.

4:00 pm. USA: ISM manufacturing index. Since November 2022, the sentiment index has only made it above the expansion threshold of 50 points in one month (March 24). This is not expected to change in September. Deka's strategists are forecasting a slight deterioration compared to the previous month (47.2) to 47.0, while Commerzbank expects a slight recovery to 47.5.

Wednesday, 2 October 

11.00 am. Eurozone: Unemployment rate. No major changes expected: According to economists, the unemployment rate is expected to remain at 6.4 percent in August. Helaba is slightly more pessimistic with an estimate of 6.5 percent.

Thursday, 3 October 

4.00 pm. USA: ISM Services Index. For the services sector, which is more important for the overall economy (compared to manufacturing), Commerzbank analysts expect a marginal improvement and a fundamentally better situation with 51.7 (after 51.5).

Friday, 4 October 

2.30 pm. USA: Labor market data. According to Deka, the labor market report for September will show whether there will be another strong interest rate cut in the USA in November. The experts expect the uncertain outcome of the election to have a negative impact, which is why the number of newly created jobs is likely to fall to 130,000. Commerzbank even expects only 120,000 new jobs due to the impact of the strike. Overall, however, this is still data that supports the narrative that the US economy will continue to grow and therefore supports the market view of a “soft landing”. 

Von Thomas Koch, 30. September 2024, © Deutsche Börse AG