European markets are experiencing a strong first half of the week, gaining momentum as investor concerns over the initial economic decisions of the Trump administration ease. While the new U.S. president emphasizes that the EU will also be subject to tariffs, the binding decisions so far only involve a review of trade policy.
This situation supports European indices, which continue their rallies this week, led by Germany's DAX. The STOXX Europe 600 index alone has risen by 2.7% this week, reaching a new all-time high (ATH). Since the beginning of 2025, the index's value has already increased by 4.2%.
It's worth noting that such movements expose European markets to potential risks if a strong tariff scenario materializes—a scenario that investors priced in during the first half of January. Given the structure of EU-U.S. trade, a 10% tariff could result in a 30% decrease in exports, while a 25% tariff could cause exports to drop by as much as 70%, according to Bloomberg estimates. This would impact the EU's GDP by 0.7% to 1.5%.
Germany's economy would be hit the hardest by the introduction of tariffs, with the most significant effects felt toward the end of the year. Over the subsequent quarters, the tariff effect could be mitigated by substituting products imported from the U.S., allowing the EU to respond with its own tariffs. This outlook currently supports the visible growth in the German market, which is benefiting from the reduced likelihood of tariffs compared to pre-inauguration market positioning.
Impact of a 25% Tariff on GDP by Country. Source: Bloomberg Finance L.P.
Situation on the DAX Index
The DAX is up 0.82% today to 21,400 points, reaching new record highs. Since the beginning of the year, the DAX has gained a total of 6.44%, breaking out from levels around 20,000 points. Over the past year, the index has recorded similar or greater gains 16 times. On the following day, it increased 10 times, averaging a rise of 0.54%, and declined 6 times, averaging a drop of 0.83%.
Among the top gainers are Adidas (ADS.DE) and Siemens Energy (ENR.DE), which have risen by 6.55% and 7.70%, respectively. Meanwhile, the biggest losers in the DE40 index today are Bayer (BAYN.DE) and Zalando (ZAL.DE), which are down 2.50% and 1.90%, respectively. A total of 24 companies are contributing to today's gains, while the remaining 16 are seeing slight declines.
From a fundamental perspective, valuations of German companies remain significantly lower than those of U.S. stocks in the S&P 500. However, they are not at low levels either. The DAX index trades at a price-to-earnings (PE) ratio of 17.8 and 16.1 for estimated earnings for the upcoming year. In comparison, U.S. companies in the S&P 500 currently trade at PE ratios of around 28-29. The dividend yield for the DAX stands at 2.63% over the trailing 12 months.
Source: xStation 5
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