The German DAX index surged again on Wednesday, closing at 23,726 points – a significant 1.1% increase from the previous day’s closing value. This rally was particularly driven by financial stocks, with Commerzbank shares experiencing a notable jump of nearly 6%, fueled by speculation surrounding potential acquisitions, notably linked to Unicredit, as well as the bank’s share buyback program. Deutsche Bank and Allianz also performed strongly, outperforming industrial giants like Infineon and Siemens Energy, which each rose approximately 4%.
This upward trend arrives despite continued warnings from the European Central Bank (ECB) regarding the risk of a speculative bubble in equity markets. Market participants appear to be largely dismissing those concerns, as evidenced by the Nasdaq’s rebound from a sharp sell-off last week, demonstrating a remarkable turnaround. While Nvidia’s stock remains below its peak post-earnings level, investor interest is shifting towards other Wall Street players like Meta and Alphabet, signaling a broader tech sector recovery.
Beyond a simple search for undervalued alternatives, analysts suggest this movement reflects continued faith in the growth potential of artificial intelligence, a factor underpinning the ongoing bullish sentiment. Even Nvidia, despite not leading the gains, remains in demand, reinforcing the established trends of recent months.
However, the market’s optimism is increasingly intertwined with speculation concerning the future leadership of the US Federal Reserve. Reports are circulating suggesting Kevin Hassett, a known ally of former President Trump and proponent of expansionary monetary policy, is being considered as a potential successor to Jerome Powell when his term concludes next May. This prospect is already influencing expectations regarding US interest rates, suggesting a lower-than-anticipated peak for the benchmark rate by the end of 2026. Lower interest rates typically inject liquidity into the system and spur valuation increases, particularly benefiting US technology stocks.
This narrative clashes directly with the ECB’s latest Financial Stability Report, which explicitly warned that current market valuations pose a significant risk to financial stability and leave the equity market vulnerable to corrections. The bank’s concerns, if taken seriously, could potentially limit the DAX’s current recovery.
From a technical standpoint, breaching the 200-day moving average offers a more positive signal. Further tailwinds could arise from a potential resolution to the conflict in Ukraine, albeit with the acknowledgement that the year-end rally in Frankfurt is not yet definitively concluded.
Meanwhile, the euro strengthened to $1.1599 in Wednesday afternoon trading, reflecting a complex interplay of factors impacting currency valuations. The disconnect between the ECB’s cautious stance and the market’s increasingly optimistic and potentially speculative, outlook raises critical questions about the sustainability of the current rally and the potential for a future correction.