Stock markets have soared this year, with the Dax gaining more than 16%, and almost 30% compared to twelve months ago, to around 19,500. The US broad market index S&P 500 has climbed by around 22% this year and by more than 30% over twelve months. So good money has been made on the stock markets once again. Only the MDax is lagging behind, with a meagre gain of 8% over the year. However, this is due to the weak performance of the German economy. Dax companies are much more internationally orientated than MDax stocks.

The reasons for the boom are easy to identify. Firstly, inflation is largely under control, after a difficult period with rampant price increases on both sides of the Atlantic. This is allowing central bankers at the ECB and the Federal Reserve to lower key interest rates again. Interest rate cuts reduce financing costs for companies, and also increase the attractiveness of share investments in relative terms. They therefore help drive up share prices. In this respect, share prices are climbing, to some extent, thanks to ECB President Christine Lagarde and US Federal Reserve Chairman Jerome Powell. The Fed, with its bold interest rate cut of half a percentage point, has shown where the journey is heading – clearly downwards.

However, the fact that the central banks have now really turned on the interest rate turbo, and that China is also easing against the backdrop of weak growth, is only one side of the coin. The other is a „sensationally good“ US economy, as asset manager Georg von Wallwitz puts it, and the resulting significant rise in corporate profits.

This applies in particular to the technology sector, where earnings are growing especially strongly, thanks to digitalisation, cloud technology, and AI. However, earnings are also climbing in other sectors. Exceptions prove the rule: of course, this does not apply to the German automotive industry, which is currently slumping. Fortunately, however, the Dax is being led by the technology stocks SAP and Siemens, which are highly weighted. Thanks to these internationally successful companies, the Dax has been climbing steadily over the year, even if the domestic economy is weakening.

The boom on the stock markets is therefore well grounded. However, investors are naturally wondering what will happen next. There are two major risks that cannot be ignored: the upcoming US election in early November, and the increasing geopolitical uncertainties, particularly in the Middle East. In addition, every upward movement is usually accompanied by interim corrections. This is completely normal and does not fundamentally jeopardise the upward trend.

With regard to the US election, Union Investment has just argued in an analysis that a Donald Trump victory is likely to be a long-term burden on the equity markets, while under Kamala Harris equities should benefit from stronger economic growth.

The escalation in the Middle East undoubtedly harbours dangers. However, the US will do everything in its power to ensure that the conflict remains regionally limited, and that the consequences for the global economy are therefore not so great.

The good news for equity investors now has three aspects: Firstly, the good times for equities usually start from November at the latest, with the traditional rally before Christmas. Secondly, corporate profits are likely to continue to share price rises worldwide. DZ Bank, for example, expects earnings in the Dax to rise significantly in 2025 and 2026. And thirdly, now that inflation has been beaten, Jerome Powell and Christine Lagarde will cut key interest rates further.

That leaves the risk of the US election. If Harris wins the election, some of the uncertainty will be removed, and there is a good chance that the stock markets will really take off by the end of the year. If Trump wins, it will be more difficult. Because higher tariffs and protectionism have never been good for equities.