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July 14, 2020

The DAX 30 – The First Half of 2020

Even though it might feel like 2020 should be coming to its end, in reality, the year is only half over. So much has happened though. We had the ongoing COVID-19 crisis, an Oil War, social unrest in the United States and let’s not forget: This is also an election year for President Trump. These events and many others resulted in extreme volatility in global financial markets, with numerous commodities, indices, currencies, shares and ETFs affected.

Today, we’ll check the DAX index performance in the first half of 2020. We will see how it reacted to the coronavirus crisis and assess what it can mean for CFD traders.

The German economy and the coronavirus

While there were many major events that took place during the last 6 months, there is little doubt that the pandemic was the most significant factor in shaping the world’s economy in the first half of 2020. As the COVID-19 spread from China to Europe, the US and the rest of the world, millions of people went into home quarantine, airports were nearly deserted, traffic on major roads fell to nonexistence and business activity was extremely limited. With no vaccination in sight and an unmeasurable damage to numerous industries, many indices crashed in February and March – and the DAX 30 was no different.

In a single month – between February 20th and March 19th – the DAX 30 price fell by over 40%, reaching lows not seen in years. The crash was not surprising considering what was happening in the world. The Germany economy, like most other economies around the globe, was under tremendous pressure, the possibility of a global recession was looming and there was a lot of uncertainty and fear.
Then the trend changed and in the few days that followed, the German index rose dramatically – adding 27% by March 25.  What happened next? While there were some decreases, the general uptrend continued. Between April 1st and June 8th, the DAX 30 added 33%. It wasn’t quite at its January levels, but it was certainly coming close.

The German index was boosted by indications that infection rates in various parts of Europe could be nearing a peak. In addition, there were positive news from China, as economic data suggested a possible V shape economic recovery.* Some people suggested the recovery reflected an optimistic market sentiment, but pointed out that it could be too early considering that no serious medical progress took place.* Other factors fueling the price increase were the gradual economic reopening of economies and extensive stimulus measures** announced by the leading Central Banks.
The price increase coincided a major rally in European stocks, one that actually outperformed Wall Street.**

The DAX 30 bulls get a reality check

Around June 8th, it was becoming evident that market optimism was unwinding. There were talks of a second coronavirus wave in various parts of the world, and more pessimistic voices were being heard. As a result, the DAX 30 price slid over 8% in a matter of 3 days – between June 9th and 11th.

What’s next?

If the first half of 2020 has taught us anything, is that the future could be full of surprises. 6 months ago, it was hard to imagine that a pandemic will bring global economy to its knees, essentially affecting each and every one of us.

However, while the possibility of a second wave remains, there are some indications that optimists might prevail. Volatility measures for market stress are elevated, but remain far from their March highs.** Trading volume, while not as high as during the dramatic March crash, is still higher than the pre-crisis levels. There is also plenty of potential cash that is not yet invested back into the market.**

Does this mean we know what will happen next? Of course not. But it shows that a lot can change, pointing out how important it is to keep following market events, check the Dax index rates and make informed trading decisions.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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