Yesterday, the leading German index DAX took a significant hit. Contrary to typical market expectations ahead of a Federal Reserve (Fed) interest rate decision, the index declined sharply. By the end of the trading day, it had lost 1.77%, with the DAX falling to 23,329.24 points. This development signals growing weakness in the German stock market, which is decoupling from and even accelerating faster than its US counterparts. The crucial question now is whether this downward trend will continue and if investors should brace for further losses.
Banks Under Pressure: Are Rate Cuts Already Priced In?
A particularly striking phenomenon of yesterday's trading day was the intense pressure on banking stocks. Shares of Deutsche Bank lost 3.5%, while Commerzbank fell by more than 4.1%. Hannover Re also recorded significant losses. These price drops could be a harbinger of the anticipated US interest rate cut. Should the Fed indeed lower rates, it would put pressure on bank margins, which in turn leads to falling stock prices. Investors seem to be anticipating this development and are selling their positions as a precaution.
The Fed's Decision: A Do-or-Die Moment for the DAX
Today, all eyes are on the Federal Reserve. Markets are firmly expecting the first rate cut of 2025. The central question for investors is the size of the cut. Some optimistic analysts are even speculating on a bold move of 0.5 percentage points. Should the Fed, under Jerome Powell, meet or even exceed market expectations, it could provide a strong boost to stock markets. Otherwise, many experts fear the DAX could continue its downward trend.
Technical Analysis: Signs Point to a Storm
The technical analysis of the DAX also underscores the negative outlook. The index has been trading below its 100-day moving average for several days. The shorter-term moving averages also show a negative slope, indicating a continued downward movement. If the Fed doesn't deliver a positive surprise today, there's a high probability that the DAX will fall further, potentially triggering a second massive wave of sell-offs. For investors, caution is now key.
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