Markets Stocks Certificates

Stock market year 2024: on the home straight

Benjamin Feingold, Feingold Research

20,000 points is the target for the DAX this year. But is this target statistically realistic by December? Investors can bet on rising prices with leverage products.

At the end of September, the DAX was just 500 points short of the magic 20,000 mark. On the one hand, this sounds absurd when you consider the economic concerns in this country. On the other hand, SAP alone accounts for a third of the DAX's 2024 earnings to date. Software, insurance and telecoms - these three sectors are pushing the leading German index. This is because they also have few operational problems - in contrast to car manufacturers and other cyclical companies. But how big is the statistical chance of a round record this year?

Seasonality helps

There are statistical analyses for all possible scenarios on the stock market. This applies in particular to technical analyses. But there are also seasonal answers to many questions. You should reduce your equity allocation at the end of May in order to return to the market at the end of September. This is the classic sell-in-may strategy. Statistics for the last third of the year could be used in relation to 2024. After eight months, the DAX's performance is impressive. According to data from the Gettex stock exchange, the leading index is well above average at just under 13 per cent since the start of the year. ‘The rally from 17,000 to 19,400 from the beginning of August to the end of  September alone corresponds to two annual returns on the DAX in percentage terms,’ says the Lynx broker, referring to the strong late summer rally.

Statistically, things are looking good

Since 1988, the DAX has been up by at least twelve per cent at the end of August fifteen times. Only in 1991 were the remaining four months negative on balance. In 1998 and 2021, there was also hardly anything to be gained, with the significant drop of 20 per cent in 1998 being particularly striking. Apart from these exceptions, however, the balance sheet is positive.
In figures: With a win rate of just under 90 per cent, the DAX gained an average of 8.7 per cent. In most cases, the market also ended the year at its high for the year, as the maximum gain shows. And the risks are also manageable. There have only been three double-digit percentage losses since entry. Of course, this analysis is no guarantee that share prices will continue to rise, especially as the US elections have added another factor of uncertainty. ‘Generally speaking, strength on the stock market tends to bring further strength,’ explains Franz-Georg Wenner from IndexRadar.

Black Rock considers recession fears exaggerated

Meanwhile, the experts at the BlackRock Investment Institute are categorising the situation fundamentally. Firstly, Blackrock believes that both the fears of recession and the extent of the expected easing of interest rates are exaggerated. According to the US investment company, investors should keep an eye on the overall picture for the last quarter of the year: ‘This is not a typical rate cut cycle - neither in the US nor in the eurozone. Interest rates are likely to be structurally higher than before the pandemic,’ says the asset manager.
What applies to the DAX also applies to other leading indices such as the S&P 500 (US equities) and Nasdaq 100 (US technology sector). For risk-tolerant investors who expect the three stock market barometers to rise significantly by the end of the year, corresponding leverage products could therefore be of interest. Discount call warrants, for example. They are basically nothing more than classic call warrants. The difference: discount warrants are cheaper than standard warrants due to a price discount. In return, however, they have a profit limit (cap).

Discount call on the DAX

One example is the discount call on the DAX from UniCredit (WKN: HD6PH2). The paper runs until mid-September 2025, with a strike price of 19,500 and a cap of 20,000 points. The subscription ratio is 1:100 (0.01). To trade the entire DAX, you would therefore have to buy 100 certificates. The share currently costs EUR 2.94. Assuming that the DAX is quoted at the cap of 20,000 points at the end of the term, the following calculation results for the discount certificate: 20,000 - 19,500 = 500. Taking the subscription ratio into account, the investor receives EUR 5. This corresponds to a profit of EUR 2.06 and thus a return of around 70 per cent. If the market expectation is not realised, losses are incurred. If the DAX ends up trading at or below the strike price of 19,500 points, the bond will expire worthless.

Knock-out certificates on the S&P 500 the Nasdaq 100

For those who prefer to bet on the US stock market, call open-end turbos, also known as call knock-out certificates, could be an option. The principle: if the underlying share rises by 1 per cent, the value of the note rises disproportionately in line with the leverage. However, the leverage works in both directions: If the reference index falls in value, the price of the call turbo falls in line with the leverage. The term of these certificates is (theoretically) unlimited (‘open end’). However, it ends immediately if the knock-out event occurs and the price touches or falls below the knock-out threshold. This results in a total loss of the investment, meaning that the capital investment is completely lost.

One example is the call warrant on the S&P 500 from HSBC (WKN: HS2UPK), with which investors act with a leverage of 5, the knock-out barrier is 4,588 points. An example of the US technology sector is the turbo call on the Nasdaq 100 from Goldman Sachs (WKN: GQ8YH3), which has a leverage of 6. The K.O. threshold here is 16,714 points.

Translated with DeepL