The year 2023 ended on a positive note for shareholders with one of the strongest year-end rallies in the history of the stock index. The German leading index, Dax, repeatedly set new record highs, with the latest surpassing 17,000 points in mid-December. Overall, the Dax recorded a gain of just over 20% for the year 2023.

The German leading index is not alone in this positive trend, as other major stock markets also experienced bullish trends. Fueled by the hype around artificial intelligence (AI) and large tech giants, the S&P 500 and Nasdaq saw significant gains. The Japanese Nikkei 225 even improved by almost 30%.

Nonetheless, the continuation of this trend in the new year is not guaranteed. The economic situation initially speaks against it. The global economy is faltering, economic prospects, especially in Germany, are more than gloomy, and the weak economy is affecting corporate profits.

Considering the sheer pace of the year-end rally, it's not surprising that most market strategists currently see limited short-term potential for stock markets, including the Dax. The likelihood of setbacks and a correction in the markets in the first half of the year is greater, given the numerous uncertainties, than the possibility of the rally simply continuing seamlessly.

However, by the middle of the year – or earlier with potential interest rate cuts – there are many reasons to be optimistic about the stock market in 2024. As soon as the Federal Reserve (Fed) and the European Central Bank (ECB) commit to interest rate cuts, financing for companies will become more affordable. This will facilitate essential investments, making these investments the primary catalyst for a new bull market.

The mega-topic of AI is likely to continue to attract investors as well. While mainly US tech giants benefited from massive stock price increases in 2023, the theme is expected to unveil more practical applications in 2024, making it interesting for other companies as well. This may lead to efficiency gains or even entirely new business models.

The Dax furthermore benefits from historically low valuations of its constituent companies. The long-term average price-to-earnings ratio (P/E) of Dax members was 12.6, and currently stands at only 11.6, promising a potential gain of another 9%. The challenging economic situation in Germany is unlikely to slow down the leading index, as a significant portion of the profits of Dax companies are generated abroad. More important than the local economy will be a soft landing for the US economy. If successful, and if the Chinese economy picks up, new record highs for the German leading index are almost inevitable. Instead of the 17,000 points from December 2023, the DAX could then target the round mark of 19,000 points.

For those who do not want to invest in the entire index through funds or ETFs, the challenge is to select the right individual stocks. Even in a strong stock market year like 2023, investors were not immune to losses in Dax stocks. Zalando shares, for example, lost over 35%, while Rheinmetall shareholders enjoyed an increase of over 50%. Investing in individual stocks will carry significant risks alongside great opportunities in the year 2024, regardless of how well the overall stock market performs.

An equally exciting alternative to the Dax can be found within the same family: the MDax. Although it lagged behind its big brother in the last two years, the MDax has shown significantly better performance than the Dax in the long term. Both indices started at 1,000 points. While the Dax has climbed to an impressive 16,700 points, the MDax has reached 27,000 points.