DAX 40 market outlook 2026
Germany's benchmark index enters next year supported by resilient corporate earnings and low eurozone inflation, though US tariffs and currency headwinds create challenges.
Three pillars support 2026 case
The 2026 performance of the German stock market, and the DAX 40 in particular, will depend on earnings resilience among Germany's global industrial champions, interest rates remaining low in the eurozone and demand for exports remaining stable despite US tariffs.
These factors, alongside a possible Russia/Ukraine peace accord, are set to play a positive role, even if the path forward is likely to be more uneven than the powerful bull market seen between October 2022 and March 2025, when the DAX pushed decisively higher in what looked like a straight line.
Even with the Trump-induced trade war and sharp April sell-off, the DAX 40 outperformed several major European and US peers for much of the year.
Corporate earnings among Germany's largest listed firms have remained more resilient than many had expected, despite a challenging macro backdrop marked by weak domestic demand, sluggish manufacturing activity, and US tariffs.
Cost discipline preserves profitability
Germany's export-oriented business model has faced headwinds in recent years, yet many DAX constituents - particularly in autos, chemicals, defence, industrials and technology hardware - have managed to protect profitability.
Through aggressive cost discipline, restructuring efforts, and tighter capital allocation, these companies have maintained margins.
Margins have held up surprisingly well. In several sectors, earnings have grown faster than revenues, signalling that firms have been able to preserve pricing power or offset softer sales through productivity gains and operational efficiency improvements.
Sideways trading reflects mixed performance
Chemicals, cyclical manufacturers exposed to China – and its lacklustre growth – utilities and real estate (though not heavily represented in the DAX 40) weighed on the German stock index's performance.
This and the unwinding of trades where ‘overvalued’ US AI and technology plays were sold in favour of stock purchases in Europe's largest economy – such as at the beginning of the year - explain why the DAX 40 has been trading sideways since June of 2025.
At the same time the German blue chip index’s peers have been catching up - and in the case of the Nasdaq 100 – started to outperform the DAX 40 towards the latter part of 2025.
DAX 40 versus global peers year-to-date performance chart
US tariff-induced lower demand for German goods and services as well as unfavourable currency dynamics - particularly with the euro appreciating by around 15% in the first half of the year – means that exporters with a high share of US dollar (USD)-denominated sales no longer have a natural earnings tailwind.
AI adoption supports operational efficiency
Meanwhile, the diffusion of AI-driven automation and digitalisation is gradually filtering into core German industries, providing incremental support.
While Germany is not viewed as a pure technology powerhouse, many DAX names - from industrial automation specialists to advanced manufacturers - are beginning to realise meaningful efficiency gains. These incremental improvements support margins and help cushion the cyclical downturn that has characterised much of 2023-2024.
The adoption of automation and digital technologies represents a structural shift that could provide sustained competitive advantages.
ECB easing provides supportive backdrop
On the policy front, the European Central Bank (ECB) might at present be reticent - but has scope - to ease further in 2026 without jeopardising its disinflation progress.
Eurozone inflation, which fluctuated between 1.9% and 2.5% during 2025, hovered around its 2% central bank target rate during the second half of the year.
With inflation expectations anchored and growth still subdued across the bloc, policymakers have room to continue cutting rates gradually.
A gently easing policy mix provides a constructive foundation for equities - particularly for interest-rate-sensitive sectors such as real estate, financials, and domestically leveraged companies that suffered disproportionately during the tightening cycle.
Valuation discount presents opportunity
Concerns over valuation should not be exaggerated. The DAX 40 trades at a price to earnings ratio (P/E) of around 17, placing it well below US benchmarks such as the S&P 500 (near 25×).
This gap has persisted despite improving earnings visibility, reflecting Germany's cyclical sector composition - heavy in autos, industrials and financials, sectors that traditionally trade on lower multiples - rather than structural weakness.
Yet these industries continue to generate robust cash flows, relatively high dividends, and maintain solid balance sheets.
The concentration of returns in autos, industrial technology, and chemicals simply reflects where Germany's durable earnings power lies.
Improved conditions support higher path
With fiscal uncertainty around Germany's budget largely resolved for now, and with corporate buybacks increasing in frequency among DAX constituents, liquidity conditions have improved.
The path of least resistance for the DAX in 2026 thus remains higher, supported by both fundamental and technical factors.
Pullbacks will, of course, occur. But the combination of steady earnings, improving policy conditions, and strong corporate fundamentals argues in favour of treating weakness as opportunity.
The bull cycle that began in late 2022 still appears to have room to run despite the sideways consolidation seen since June.
Volatility expected to return
The unusually steady uptrend seen in the DAX 40 since its 7,545 April low will not persist indefinitely. Volatility will return at some stage in the new year.
Market participants should remain prepared for sharper moves - both down and up - as the DAX 40 once more tries to breach psychological resistance levels.
The 2026 journey is likely to be choppier than recent experience, requiring active management and appropriate risk controls.
Nevertheless, the fundamental case for German equities remains intact supported by multiple positive factors.
Technical analysis of the DAX 40
The DAX 40 – up around 19% year-to-date – remains in a medium-term sideways trading range. While its November low at 22,963 underpins, the long-term uptrend is deemed to stay intact.
DAX 40 weekly candlestick chart
A rise above the November peak at 24,569 would likely lead to record highs being made around the 25,000 mark.
Further up lies the 161.8% Fibonacci extension target of the 2020-to-2021 bull market, projected higher from the October 2022 low, at 26,318. It represents another 10% advance from current levels.
DAX 40 monthly candlestick chart
Investment considerations for German equities
For investors considering DAX 40 exposure heading into 2026, the combination of earnings resilience, policy support, and valuation discount creates compelling opportunities.
- Research German corporate earnings trends, ECB policy outlook, and sector dynamics to understand the investment case.
- Consider how tariffs, currency movements, and European economic conditions might affect DAX performance.
- Open an account with IG by visiting our website and completing the application process.
- Access DAX 40 exposure through our platform, including both index products and individual German shares.
- Implement appropriate risk management given expected return of volatility in 2026.
Share dealing provides direct access to German companies' strong fundamentals.
Spread betting and CFD trading offer flexible approaches for trading DAX movements.
Important to know
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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