The DAX index has stalled this month as investors watch the rising tensions between Europe and the United States. The index, which tracks the biggest companies in Germany, peaked at €23,470 this month and then retreated to a low of €22,500 on Thursday.
German automakers under pressure
The DAX index retreated on Thursday after Donald Trump confirmed that the US would implement new tariffs on European cars from next week. Tariffs will move from about 2% to 25%, a big monumental shift that will be felt in Germany.
A 25% tariff means that a car that now costs $50,000 will start costing at least $75,500 more in the United States. That’s because these tariffs will ultimately be pushed to consumers over time.
Customers, on the other hand, will now opt to buy American-made cars that will have fewer tariffs. This means that there is a risk that German vehicle imports to the United States will slip as companies rush to expand their plants in the US.
The US is a pivotal market for German automakers like BMW, Volkswagen, Mercedes Benz, and Porsche. In theory, a company like BMW will be impacted less because its biggest factory globally is in South Carolina.
Porsche will be the most impacted DAX index constituent because the US has become its biggest market and it makes all its vehicles in Germany. While its customers are affluent, there is a likelihood that many of them will be cautious. This explains why the Porsche share price has crashed by 16% this year, making it the second-worst performer in the index after Vonovia.
Other German auto stocks are holding steady this year, partially as investors believe that Donald Trump just wants a deal. BMW stock has dropped by 1% this year, while Daimler Truck, Mercedes-Benz Group, and Volkswagen have risen modestly.
These stocks will likely feel the heat when the trade war between the US and German accelerates.
German government spending
The main reason why the DAX index has held steady as challenges rise is that government spending is expected to rise this year.
This month, the parliament voted to approve a €500 billion infrastructure fund and easing borrowing rules. Most of these funds will go towards defense spending now that there are concerns about Donald Trump and JD Vance’s attitude towards Europe.
This explains why companies exposed to infrastructure are leading the DAX index this year. Rheinmetall stock price has soared by 120% this year, while Heidelberg Materials is up by 40%.
The other top gainers in the DAX index are Commerzbank, Allianz, Deutsche Bank, Bayer, and Siemens. Commerzbank is up because of the ongoing European bank stocks rally and hopes that Unicredit will make a move either this year or next.
DAX index analysis
DAX chart by TradingView
The daily chart shows that the DAX index has been in a tight range in the past few months. It peaked at €23,470, a record high.
The index has remained above the 50-day Exponential Moving Average (EMA), a sign that bulls are in control. It has also formed a bullish flag chart pattern.
Therefore, the index will likely remain under pressure for a while as concerns about tariffs continue. More gains will be confirmed if the index rises above the all-time high of €23,470. A drop below the support at €22,400 will invalidate the bullish view.
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