While the US stock indices are showing signs of a correction, the German DAX 40 is capitalizing on their weakness through a combination of fiscal and monetary expansion, resulting in an upward trend. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Germany’s fiscal stimulus is being compared to the Marshall Plan.
- Capital spillover from the US to Europe supports the DAX 40 rally.
- The ECB will not pause its monetary expansion cycle.
- The DAX 40 index can be purchased on pullbacks with a target of 26,000.
DAX 40 Fundamental Forecast for Six Months
What was once regarded as a setback has since been recognized as a catalyst for long-term growth and prosperity. The Bundestag’s recent decision to exempt defense spending from fiscal constraints is a welcome development. The substantial financial stimulus, estimated at approximately $1 trillion, has contributed to a 16% surge in the DAX 40 index in 2025.
The Bundestag’s approval of Friedrich Merz’s proposal, supported by 512 votes out of 733, has been widely compared to the Marshall Plan, a pivotal initiative in the post-war economic recovery. According to Bloomberg, the fiscal stimulus could potentially boost German GDP by 1% in the coming years, with a projected increase to 2% or higher by 2040. Investor confidence surged to its highest point since January 2023. The ZEW business expectations indicator reached its highest point since February 2022.
Investors who strategically shifted their assets from the Magnificent Seven stocks to the German stock index, a move that occurred shortly after Christmas, have achieved a notable gain of 56%. The flow of capital from North America to Europe has been a significant driver of the DAX 40 rally.
Magnificent 7 Stocks Relative to DAX 40 Index
Source: Bloomberg.
Prior to Donald Trump’s return to the White House, European stock indices were underperforming their US counterparts. However, the uncertainty surrounding Trump’s policies led to a flight of capital from the United States. US protectionist policies can severely harm the global economy, and the consequences of these policies have already become evident. The US stock market has been particularly hard-hit.
According to a survey by Bank of America, investors are divesting US equities at the fastest pace on record. Their exposure has deviated from normal levels by 23%, the most significant deviation since June 2023. Meanwhile, stock indices in Europe and the UK have posted significant gains.
Global Fund Manager (FMS) Survey
Source: Bloomberg.
The DAX 40 index is supported by the fact that fiscal expansion in Europe is associated with monetary expansion. According to Bloomberg, the European Central Bank is expected to reduce the deposit rate from 2.75% to 2% by the end of the year. According to Governing Council member Olli Rehn, trade wars will hurt the eurozone economy, and the effects of Friedrich Merz’s projects will be felt over time. This outlook enables the European Central Bank to proceed with monetary policy easing.
DAX 40 Trading Plan for Six Months
The medium- and long-term outlook for the German stock market remains bullish. While Europe is on the verge of a trade war, the principle of “the time to buy is when there’s blood in the streets” remains relevant. Pullbacks in the DAX 40 index create an opportunity to open more long trades with a target adjusted from 24,000 to 26,000.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of FDAX in real time mode
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