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DAX Year in Review

For the DAX, 2016 was a year of highs and lows.

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Nevertheless, as the end drew near, Germany’s key stock index delivered handsomely for investors, closing with an annual gain of nearly 7.5%. With this value, the DAX has just outperformed its average level since the turn of the century of about 6%. Each quarter was dominated by a specific, individual theme.

First quarter: Concerns about China

In the first quarter, trading activity was predominantly overshadowed by concerns regarding the cooling of China’s economy. Weighed down by fears that China could lose momentum as the driving force of the global economy, the DAX sank to year low at 8,700 points. Only after action by China’s central government were these concerns allayed. The DAX was then able to recover ground by mid-April.

Second quarter: EU referendum in the United Kingdom

The most decisive issue during the second quarter was the forthcoming United Kingdom referendum on membership of the EU. Even though most forecasters predicted a No vote in the referendum and maintenance of the status quo, trade leading up to the poll was highly volatile. When clarity emerged over the surprise result of departure from the EU, the DAX suffered its greatest single day loss of the year. On the day after the vote, the index tumbled from around 10,350 to below 9,200 points.

Third quarter: The wait for Yellen

The DAX, defying expectations, recovered from this shock relatively quickly. At the beginning of August, the leading stock index was back at pre-referendum levels. Even so, the market awaited the September meeting of the US Federal Reserve with baited breath. The decision by US Federal Reserve Chair Janet Yellen to raise interest rates in December 2015 had fuelled growing expectations of the next rate hike. However, in view of the upcoming US election, the Federal Reserve held out on market participants to the end of the year. The DAX responded to these developments by maintaining a sideways trend between 10,200 and 10,800 points.

Fourth quarter: Trump and Mario Draghi

After Brexit, polling organisations also failed in their predictions of the US election. Defying expectations, Donald Trump won the vote and market reaction was clear. After stock exchanges in Europe were rocked on the day after the election, US indices soared to new highs. This reaction could be explained by the expectations or hopes that Trump would implement the promised fiscal policy reforms and embark on ambitious infrastructure projects. Even so, the upsurge in the DAX came only after action by Mario Draghi. When it became increasingly clear that the ECB would pursue further relaxation of monetary policy, the DAX broke through the 10,800 barrier with robust gains, before consolidating at a level of around 11,450 points during the festive season.

Conclusion: 2016 featured all that a gripping year on the stock exchange could offer. With performance of around 7.5%, the DAX delivered gratifying results for investors and 2017 promises to be an exciting year. With Trump, the implementation of Brexit and elections in both France and Germany, we will see many new opportunities for trading. Effective risk and money management will continue to be important. We will be pleased to advise you on our guaranteed stop losses scheme.

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