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Falling leaves, rising prices

Since its peak at the end of July, the German Stock Index (DAX) has had to shed quite a bit. Investors are now faced with the question of whether they should increase their holdings against the trend to benefit from a price recovery. After all, traditionally good stock market performance awaits in the final quarter. “Indeed, the DAX history sends a buy signal”, says Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. “However, investors should note that fundamentally, there is no real reason for an upswing.”

The summer started well for the German stock market barometer. By the end of July, the DAX had reached an all-time high. But then it stopped: The prospect of a possible recession caused significant losses in August and September. A sharp interest rate hike also played a role, raising the yield on ten-year US government bonds to nearly five percent. The yield on German Bunds also increased. At the beginning of October, the DAX is about nine percent below its July peak. Has it found a floor? Is it the right time to buy?

“Statistically speaking, the price losses since summer are not outliers”, says Gerlinger. Of all stock market months, September is the worst and August the second worst. This is shown by an evaluation of German newspaper Handelsblatt since 1988, the year the DAX was born. The same statistics suggest that things could now move upwards. After all, losses in the final quarter are unusual. Historically, October, November, and December have proven to be very good stock market months. Only April has a better average than this autumn trio.

“In this context, it might now seem tempting to use the fallen prices as an opportunity to re-enter the market”, says Gerlinger. However, fundamentally, there is little to suggest an upswing. Interest rates remain high, with the German Bund yield recently climbing back over three percent – the last time it was at this level was in 2011. On the economic side, everything points to a contraction in economic performance in the third quarter. Private consumption is particularly weak – retail sales in Germany fell for the third consecutive month in August, and companies’ export expectations are also very low.

However, at the same time, the inflation rate is decreasing rapidly, the prime rates may have reached their peak, and the US economy appears more robust than anticipated. Given the fallen prices, counter-cyclical entry could be worth it for risk-taking investors, says Gerlinger. “After all, many of the negative news and expectations are already priced into the market – the big question is, is it enough?”


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