Can the DAX continue to lead the race?

Since the beginning of the year, the DAX has been breaking records and outpacing other European markets. Indeed, the political and geopolitical context and composition of the index are favorable, although valuation is now an issue.

Having risen by

22% rise in 2025, reaching a new all-time high at the end of last week, and SAP, which is now the largest European company by market capitalization, everything is going well for German stocks.

Buoyed by the prospect of higher military budgets in Europe, a fiscal stimulus package initiated by Chancellor Merz, and SAP benefiting fully from the rise of AI, the DAX is leading the way amongst the major European markets.

Over one year, the DAX has outperformed the Stoxx 600 by 22 points. Source: MarketScreener

This gap can be explained by the contribution of a few large stocks. According to a study by Bank of America, five stocks account for three-quarters of the outperformance since mid-August: SAP, Rheinmetall, Siemens Energy, Siemens, and Allianz.

Sources: Bank of America Global Research, Datastream

The outperformance of German equities raises the question of their remaining upside potential. According to the US bank's analysts, the good news is already priced in: "We remain underweight on Germany, as we believe current valuations are overly optimistic."

If investors now consider the DAX to be fairly valued, they may now look to other European indices.

As we mark the first anniversary of the dissolution of the French National Assembly, the CAC 40 is the only major European index to post a negative performance over the period.

Beyond the political context, the underperformance of luxury stocks also explains this decline. Over one year, L'Oréal is down 16%, while LVMH is down 36%. Kering has even fallen 47%.

The Paris index will therefore need to see these stocks recover, as well as relative political stability. In short, another "live grenade" from the president would not really be good news for the CAC.