DAX 40 hits record high as investors rotate out of expensive US technology stocks

What is driving the DAX 40 to record highs

Germany's DAX 40 climbed to a fresh all-time high as investors continued rotating away from richly valued US technology stocks and into more attractively priced cyclical and industrial companies. The rally marks a notable shift in market leadership that has been building throughout the summer.

European equities are increasingly benefiting from profit-taking in the artificial intelligence winners that have dominated returns over the past two years. As investors reassess lofty valuations across the US technology sector, capital has begun flowing into sectors offering stronger value and greater exposure to a recovering global economy.

The move mirrors a broader rotation already underway across global markets. June proved to be a standout month for the Dow Jones Industrial Average, which surged to record highs even as the Nasdaq's seemingly unstoppable rally began to stall.

The first two trading sessions of July have extended that trend, with the Dow continuing to set fresh records while semiconductor stocks have come under sustained pressure. For traders watching indices, the shift in market leadership is one of the most significant macro themes of the current quarter.

Valuation, not fundamentals, is driving the rotation

This changing market dynamic is being driven less by deteriorating fundamentals than by valuation. Many of the largest US chipmakers and AI-related companies entered the summer trading at historically demanding multiples following extraordinary gains over the preceding two years.

As a result, investors have increasingly chosen to lock in profits and diversify into sectors that have lagged the technology boom. That rotation does not require any bad news from the technology sector itself - simply the recognition that better value exists elsewhere.

The latest US non-farm payrolls report has added further support to the rotation. Weaker-than-expected jobs growth has revived hopes that the Federal Reserve may not need to resume raising interest rates, encouraging investors to broaden their exposure beyond the narrow group of mega-cap technology stocks that have dominated recent market performance.

The return of the familiar "bad news is good news" narrative has helped support cyclical sectors that typically benefit from lower interest rate expectations. That backdrop is particularly favourable for European markets, which have a heavier weighting towards the kinds of value and cyclical stocks now attracting inflows.

Why the DAX is particularly well positioned

For the DAX 40, the current environment is particularly favourable. The index has a heavy weighting towards industrials, manufacturers, financials and exporters - all of which stand to benefit if global growth stabilises while borrowing costs remain contained.

Companies in these sectors also trade at considerably lower valuations than their US technology counterparts, making them attractive destinations for investors seeking better value. That valuation gap has been a persistent feature of European versus US equity markets for several years, but the rotation now underway suggests investors are finally acting on it.

The DAX's composition means it is highly sensitive to global trade conditions and manufacturing activity. Any improvement in the global growth outlook, particularly in key export markets such as China and the US, could provide an additional tailwind for the index beyond the valuation-driven rotation already in progress.

You can trade the DAX 40 and a wide range of other global indices through spread betting or CFD trading, both of which allow you to go long or short depending on your view of where the market is heading.

Should investors be worried about semiconductor stocks

The recent underperformance of semiconductor stocks should not necessarily be interpreted as the beginning of a broader bear market for technology. Instead, it appears to reflect a healthy period of consolidation after an exceptional run higher.

While chip stocks are being punished for sky-high valuations, the selling has so far remained orderly and has yet to develop into anything more concerning. There is an important distinction between a valuation-driven consolidation and a fundamental breakdown, and current price action looks more consistent with the former.

For traders, the key question is whether the weakness in semiconductors deepens or stabilises. A more disorderly sell-off in US technology could dampen risk appetite more broadly, potentially limiting the DAX's ability to extend its record-breaking run even as it benefits from rotation flows.

Those looking to express a view on individual technology shares or the broader sector can do so through our trading platform, which offers access to thousands of global markets including US and European equities.

Is this the start of a sustained shift in market leadership

Rather than signalling a wholesale retreat from equities, the latest moves suggest investors are simply broadening their horizons. The DAX's record high illustrates that leadership within global equity markets is evolving, with European value stocks and traditional industries increasingly sharing the spotlight previously reserved for US technology giants.

Whether this rotation proves sustained or temporary will depend on several factors, including the trajectory of US interest rates, the durability of European economic recovery and whether AI-related earnings growth ultimately justifies the premium valuations attached to the sector's leading stocks.

If the Federal Reserve does hold rates steady or signals a pivot back toward easing, the case for rotating into rate-sensitive cyclical sectors becomes even more compelling. European industrials and financials, which make up a significant portion of the DAX, would be among the primary beneficiaries of such a shift.

For those wanting to understand more about trading online and how to position around major market themes like this rotation, our educational resources cover everything from the basics of what trading is to more advanced strategy.

What to watch next for the DAX 40

If the current rotation continues, the DAX 40 could remain well positioned to outperform as investors continue seeking opportunities beyond the expensive corners of the US market. Key catalysts to monitor include:

• US inflation data and any shift in Federal Reserve rate expectations
• Eurozone economic activity data, particularly in Germany's manufacturing sector
• Corporate earnings from DAX-listed industrials and financials
• Further developments in US semiconductor stocks and the broader technology sell-off
• Global trade conditions and any updates on tariff policy affecting German exporters

The DAX hitting a record high is a meaningful signal that the post-pandemic recovery in European equities still has momentum. Whether it can hold those gains will depend on the macro backdrop remaining supportive and the rotation continuing to attract fresh capital from investors rebalancing away from US technology.

Technical analysis of the DAX 40

The DAX 40 index, up around 5% year-to-date, has been underperforming not just its US and Asian peers, but also some of its European neighbours. It is therefore not surprising that it is playing catch-up.

DAX 40 versus global stock indices year-to-date performance

So far the index has shot up to a second day of record highs at 25,809, close to minor psychological resistance at 26,000.

If overcome, the next major upside target is represented by the 161.8% Fibonacci extension of the October 2022-to-May 2024 bull market, projected from the August 2024 low, at 28,400.

DAX 40 monthly candlestick chart

Should profit-taking emerge, initial support is likely to be found between the January and May highs at 25,395 to 25,438.

DAX 40 daily candlestick chart

While the 26 June low at 24,548 underpins, the medium-term uptrend is deemed to be intact. The long-term bullish trend will remain valid as long as the late April low at 23,716 holds.

How to trade the DAX 40

1. Do your research on the DAX 40, the rotation theme and the key macro data releases likely to drive near-term moves
2. Decide whether you want to trade via spread betting or CFD trading 
3. Open a trading account with us
4. Search for the DAX 40 or any related markets in our trading platform
5. Place your trade