Why DAX 40 Could Push Higher: What Could Drive the Next Rally?

01. Historical Context

The DAX still has upside, but it needs a better quality rally than the last one

The DAX has already delivered a long-run gain that investors cannot ignore. Yahoo Finance chart data show the index climbing from 9,680.09 on 31 May 2016 to 23,950.57 on 15 May 2026, a 147.42% increase over ten years and a 9.53% annualized return. That means the next upside leg is not a recovery-from-crisis story. It is a continuation story that depends on whether profits, fiscal support and industrial demand can justify keeping the benchmark close to its recent highs.

Data-based bullish visual for the DAX 40 — The upside case is a confirmation case: the DAX is near enough to its highs that the next move up needs better breadth, cooler inflation, and more convincing earnings delivery.

DAX 40 rally framework across investor time horizons

Horizon	What matters most	What would strengthen the thesis	What would weaken the thesis
1-3 months	Inflation path, ECB tone, and Q2 guidance	DAX reclaims 24,500 while Germany CPI cools and guidance stabilizes	Inflation stays hot and the index fails repeatedly below resistance
6-12 months	Earnings revisions and participation across sectors	Positive revisions broaden beyond a handful of industrial and AI-linked names	Consensus numbers stay high while delivered growth stays mediocre
To 2027	Whether fiscal support turns into real cash-flow growth	Germany's investment push lifts domestic demand without reigniting a policy scare	Higher public spending is offset by energy costs, weaker exports, or persistent inflation

The STOXX DAX page describes the index as a performance benchmark that includes dividends and caps any one name at 15%. It also lists Siemens, Allianz, SAP, Siemens Energy, Airbus, Deutsche Telekom, Munich Re, Infineon, Rheinmetall, and Deutsche Bank among the top ten constituents. That mix matters because it gives the benchmark exposure to industrial automation, enterprise software, power infrastructure, semiconductors, financials and defense. The rally case gets stronger if more than one of those pillars participates at the same time.

Valuation is not distressed, but it is still workable if growth improves. Goldman Sachs Research wrote on 15 January 2026 that Europe traded at 15x 2026 earnings, around the 70th to 71st percentile of its own 25-year history. Simply Wall St's German market page, updated 16 May 2026 using S&P Global Market Intelligence data, showed an aggregate German market P/E of 17.2x and earnings forecast to grow 17% annually. That combination means upside remains plausible, but it needs an earnings story rather than a purely sentiment-driven rerating.

02. Key Forces

Five bullish forces that could extend the move

First, Germany's economy has finally moved back into growth. Destatis said first-quarter 2026 GDP rose 0.3% quarter on quarter and 0.5% year on year on a price-adjusted basis. Private consumption, government consumption and exports all increased compared with the prior quarter. That is not an outright boom, but it is enough to keep the DAX from depending solely on foreign demand and policy hope.

Second, some of the most cyclically important hard data have improved. Destatis reported new manufacturing orders up 5.0% month on month in March and exports up 0.5% month on month to EUR 135.8 billion. Industrial production still fell 0.7% in March, so the picture is mixed, but the rally case only needs incremental improvement rather than perfection. For an export-heavy benchmark, stronger orders and exports are the kind of early-cycle data that can matter more than one weak production print.

Third, Germany's fiscal stance has turned more supportive for equities. The Federal Government says the infrastructure and climate-neutrality special fund totals EUR 500 billion and that federal investment is planned to exceed EUR 120 billion in 2026, including EUR 58 billion from the special fund. That is a meaningful tailwind for industrials, grid suppliers, construction-linked names and domestic demand more broadly.

Fourth, the earnings setup is mixed, but still constructive if it improves from here. Deutsche Borse wrote on 11 May 2026 that the DAX reporting season had been slightly disappointing, with an aggregate earnings surprise of minus 4.5% and realized earnings growth of 0.7%. But the same note said the consensus still expects 11% earnings growth for the current year and around 15% for 2027. That gap between weak delivery and optimistic forward expectations is a risk if it widens, but it is a catalyst if the next reporting cycle closes it in the right direction.

Fifth, regional institutional research is still constructive on Europe. Goldman Sachs Research expects the STOXX 600 to deliver an 8% total return in 2026, supported by 5% EPS growth in 2026 and 7% in 2027. J.P. Morgan Asset Management says Europe's 2026 EPS estimate is finally being revised up after seven months of downgrades, while also arguing that mid-single-digit growth is a more realistic base than the 12% bottom-up consensus. For the DAX, that mix points to a measured, earnings-led rally rather than a speculative melt-up.

Five-factor scoring lens for the rally case

Factor	Why it matters	Current assessment	Bias
Macro backdrop	Determines whether cyclicals can keep rerating	Germany GDP returned to growth and euro area unemployment is 6.2%, but activity is still soft	Neutral to bullish
Inflation and rates	Controls how much multiple expansion is possible	Germany CPI is 2.9% and euro area inflation is 3.0%, while the ECB deposit rate remains 2.00%	Neutral
Earnings revisions	Best proof that the rally deserves to continue	Europe's 2026 EPS estimates are now being revised up, but DAX surprise breadth was weak in Q1	Neutral to bullish
Fiscal and capex cycle	Supports industrial and infrastructure-heavy parts of the index	Germany now has a EUR 500 billion special fund and plans over EUR 120 billion in 2026 investment	Bullish
Valuation support	Sets the room for error if data improve only modestly	Europe trades near 15x forward earnings and the German aggregate market P/E is 17.2x	Neutral

The strongest version of the bullish case is therefore a broadening case: better domestic activity, positive revisions, visible fiscal follow-through and inflation that cools enough to stop acting like a tax on multiples.

03. Countercase

What could interrupt the rally

The largest risk is that inflation stays too high for too long. Destatis said Germany's CPI rose 2.9% in April and core inflation was 2.3%, while Eurostat's flash estimate put euro area inflation at 3.0% with energy inflation at 10.9%. If that energy shock persists, the market will struggle to justify a higher multiple on soft rather than strong growth.

A second risk is that Germany's industrial recovery still lacks consistency. March factory orders were strong, but industrial production fell 0.7% and manufacturing output excluding energy and construction fell 0.9%. ZEW's May survey showed expectations at minus 10.2 and the current-conditions gauge at minus 77.8. That combination is good enough to keep hope alive, but not good enough to guarantee that a rally will broaden smoothly.

Third, the DAX reporting season needs to improve quickly. Aggregate earnings surprise was minus 4.5% and realized growth was just 0.7% in the Deutsche Borse tally. If the next reporting cycle fails to validate the consensus expectation of 11% earnings growth this year and around 15% in 2027, upside targets will start to look stretched.

Current risks to the bullish case

Risk	Latest data point	Why it matters	Current assessment
Inflation reset	Germany CPI 2.9% in April 2026; euro area CPI 3.0%; euro area energy inflation 10.9%	Can block multiple expansion and keep the ECB cautious	Bearish
Mixed hard data	March production -0.7%, even with factory orders +5.0% and exports +0.5%	Shows the industrial rebound is still uneven	Neutral to bearish
Soft sentiment	ZEW expectations at minus 10.2 and current conditions at minus 77.8	Weak confidence can spill into revisions if it persists	Bearish
Earnings hurdle	DAX aggregate earnings surprise minus 4.5%; earnings growth 0.7%	Leaves less room for optimism than headline index levels suggest	Bearish
Valuation	Goldman puts Europe at 15x 2026 earnings, near the 70th-71st percentile of history	Means upside should come from earnings, not a richer multiple	Neutral

The bullish setup remains credible only if these headwinds ease one by one. If sticky inflation, weak production and poor surprise breadth start reinforcing one another, the likely outcome becomes another consolidation instead of a breakout.

04. Institutional Lens

What professional research implies for further upside

The institutional read on Europe is constructive but disciplined. Research desks are not calling for a euphoric melt-up. They are saying that Europe can rise if earnings improve and fiscal support offsets the region's structural headwinds. That is exactly the right framework for the DAX.

Institutional lens for the bullish case

Source	What it said	Date	Read-through for DAX 40
Goldman Sachs Research	STOXX 600 total return of 8% in 2026, with 5% EPS growth in 2026 and 7% in 2027	15 January 2026	Supports a measured Europe bull case built on profits rather than exuberance
Goldman Sachs Research	Europe trades at 15x 2026 P/E and around the 70th-71st percentile of its own history	15 January 2026	Means a DAX rally should be earnings-led, not multiple-led
J.P. Morgan Asset Management	Europe's 2026 EPS estimate is being revised up after seven negative months, though mid-single-digit growth looks more realistic than the 12% bottom-up consensus	2026 outlook page available in May 2026	Improving revisions help, but expectations still need to be earned
ECB staff projections	Euro area GDP growth forecast 0.9% in 2026 and 1.3% in 2027; 2026 HICP inflation forecast 2.6%	March 2026	Macro growth is positive, but not strong enough to forgive repeated misses
Deutsche Borse weekly outlook	DAX aggregate earnings surprise minus 4.5%, realized earnings growth 0.7%, consensus still at 11% for the current year and around 15% for 2027	11 May 2026	The upside case depends on the next reporting cycle being meaningfully better than the last one

The common message is that the DAX can still push higher, but the quality of the advance matters. A rally backed by revisions, capex and broader sector participation deserves more trust than a rally driven only by declining fear.

05. Scenarios

Actionable 6 to 12 month scenarios

The ranges below are author estimates built from the current DAX level, the 52-week range, Germany macro data, and the institutional research cited above. They are not third-party index targets.

DAX 40 next-rally scenarios

Scenario	Probability	Range	Trigger conditions	When to review
Bull	43%	24,800-25,800	DAX reclaims 24,500 and then 25,000, Germany inflation cools toward 2.5%, and Europe EPS revisions remain positive through Q2 reporting	Review after the next ECB meeting and the main Q2 reporting window
Base	37%	23,200-24,800	Germany growth stays positive but soft, fiscal support helps selectively, and earnings revisions stabilize without a major upside surprise	Review monthly with Destatis activity releases and Eurostat inflation data
Bear	20%	22,300-23,200	Inflation stays close to 3.0%, the DAX loses 23,500 decisively, and forward guidance weakens again	Review immediately on a weekly close below 23,500 or on renewed negative revisions

The tactical conclusion is simple. Buyers should want evidence above 24,500 and a cleaner inflation trend before assuming the next leg up is durable. Existing holders can stay constructive, but the position is stronger if it is defended by revisions and operating delivery rather than by a hope-driven rerating.

If the data cooperate, the DAX can work back toward the early-2026 highs. If they do not, the more likely outcome is another broad range rather than an immediate breakout.