Stock Market Comment: Are all DAX members equally important?

• DAX traded sideways amid trade uncertainty

• Daimler and Volkswagen among DAX top revenue contributors

• Allianz (ALV.DE) was DAX top EPS contributor in 22 out of previous 28 quarters!

• Utility companies tend to be the biggest drag for index’ earnings

Q3 earnings season for DAX index finished some time ago. However, are there companies that contribute more to the index and stand out among the rest? In this commentary we will take a look at how much particular companies have contributed to index’ overall revenue and EPS figures over the past few years. 

DAX (DE30) has been trading sideways recently. However, we can use false breakouts to paint a downward channel. Wecan see that the index is currently struggling at the lower limit of the earlier-broken consolidation range that coincides more or less with the midpoint of channel’s width. A lot will depend on the market sentiment but we can determine two key levels to watch - support at 13000 pts and resistance at 13300 pts. Smashing through either of this has a chance to trigger a bigger move. Until that happens, one could expect German index to trade within the range of the downward channel. Source: xStation5

Before we start it should be noted that companies tend to report two different EPS measures - basic EPS that reflects net income on each share and comparable EPS that excludes one-off items. It is important to know what measure you are looking at as discrepancies can be significant.Throughout the commentary we will focus on basic EPS measure. Contributions to the index were calculated as the company's revenue/EPS multiplied by company’s weight. Weighted measure for the index is the sum of those contributions. Due to limited availability of the historical weighing data, we will use our own estimates of weights based on free-float capitalization method used during DAX rebalances.

Daimler (DAI.DE) continues a pullback after a failed attempt of breaking above the 38.2% Fibo level of the downward move started at the beginning of 2018. Share price is testing a combination of two important supports - 200-session moving average (purple line) and the zone ranging around 23.6% Fibo level. Recent price action suggests that bulls may be able to prevent further declines. Source: xStation5

While one could expect company’s with the biggest weight to have the biggest contribution to the index’ weighted measures, it is not necessarily the case. When it comes to revenue, it is indeed the company with lowest share that tends to report the smallest contribution. However, when we take a look at which companies contributed the most, things are not as straightforward. We have analyzed a 28-quarter period (Q4 2012 - Q3 2019) and in over half of those quarters Daimler (DAI.DE) and Volkswagen (VOW3.DE) were the biggest revenue contributors. The two carmakers were responsible for around 30% of DAX weighted revenue in between Q2 2015 and Q1 2019 while their combined weight seldom exceeded 11%.

Allianz (ALV.DE) halted upward move at the 127.2% exterior retracement of the correction move started in late-July. Subsequent pullback was halted at the support zone ranging below 78.6% Fibo level (€213.50). The index is attempting to break above the 50-session moving average (green line). Note that test of this moving average preceded major upward move started at the beginning of October. Source: xStation5 

Things get even more interesting when we take a look at EPS contributions. Throughout the analyzed period (Q4 2012- Q3 2019), one company can be considered as top EPS contributor to DAX - Allianz (ALV.DE). The German insurer held top spot in 22 out of 28 quarters! Allianz was responsible for an average of 21.75% of DAX EPS in those quarters and an average of 20.6% in all analyzed quarters. Allianz is one of the DAX heavyweights but its weight did not exceed 9% in any analyzed quarter. 

RWE (RWE.DE) is pulling back from the 5-year high of €28.80. Stock is trading within a downward channel and has recently bounced off the lower limit of the channel. The stock is attempting to break above the 38.2% Fibo level (€25.95) that is localized near the midpoint of channel’s width. Note that this level acted as a floor in the first half of November therefore its significance should not be neglected. Source: xStation5

In the case of EPS, we usually cannot say which company contributed the least as some companies report negative EPS and, in turn, have a negative contribution. Having said that, we will focus on companies that were the biggest drag for DAX EPS. This ranking is not dominated by a single company like top contributors are but some companies appear there more often than the others. German utility companies - RWE (RWE.DE) and E.ON (EOAN.DE) - were top laggards in 9 out of 28 analyzed quarters. Other companies that often turned out to be top laggards were HeidelbergCement (HEI.DE - 5 quarters), ThyssenKrupp (TKA.DE - 3 quarters) and Deutsche Bank (DBK.DE - 3 quarters). In the remaining 8 quarters, top laggard spot was usually held by companies that reported significant one-off earnings declines, like Volkswagen in Q4 2015 or Bayer in Q4 2018. Having said that, industrials and utilities tend to be the biggest drag for the index.