Germany’s DAX: What You Can Learn from the 2007 Top
Why investors should be aware of a divergence between stock prices and consumer confidence
by Bob Stokes
Updated: March 24, 2022
Among the scores of stock market indicators, there's at least one that may be off many investors' radar screens.
And, that is the trend in consumer confidence. Specifically, a peak in consumer confidence tends to precede a peak in the stock market.
With that in mind, back on Nov. 25, the Telegraph said:
Consumer confidence has dropped sharply in Germany...
A few days later, our December Global Market Perspective provided a retrospective of Germany's DAX and consumer confidence with this chart and commentary:
As the DAX approached its July 2007 peak 14 years ago, a telling divergence popped up between stock prices and consumer confidence. The GfK Consumer Confidence indicator, which surveys about 2,000 households every month, reversed in December 2006, seven months before the DAX reversed. Consumer confidence fell for three months, and then rallied to a secondary but lower peak in July 2007, coinciding with the stock market's final top on July 13, 2007. Only then did the bottom fall out.
Market history usually does not repeat exactly, however, do know that the DAX is trading lower than it was at the time of that big drop in consumer confidence, which the Telegraph reported in November.
The key takeaway is that consumer confidence tends to trend with stocks.
Indeed, here's one of the more recent headlines about consumer confidence in Germany (Dow Jones Newswire, Feb. 23):
German Consumer Confidence Is Expected to Continue Its Downward Trend
Does this mean that a big crash is just ahead for Germany's main stock index?
Well, you can get a good idea of what to expect next for the DAX as you look at the index's long-term Elliott wave labeling in our March Global Market Perspective. Inside the same issue, you'll find analysis of the DAX's price-to-sales ratio, as well as the price-to-book ratio.
If your investment interests extend beyond Germany, know that the Global Market Perspective also provides financial analysis for other major markets in Europe, as well as the Asian-Pacific and the U.S.
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