In 2025, the German DAX 40 index has significantly outperformed the U.S. S&P 500. The DAX is up by 20% year-to-date, while the S&P 500 has only gained just over 1% as of May 2025.
Several factors contribute to this divergence. Increased defense spending in Germany, spurred by fiscal stimulus, has boosted the DAX. Additionally, hopes for a resolution to the war in Ukraine have further stabilized the European economy. The European Central Bank's (ECB) expected monetary easing also provides support by lowering borrowing costs and encouraging investment.
Conversely, rising U.S. bond yields, influenced by potential tax cuts that could increase the budget deficit, have negatively impacted U.S. stocks. Uncertainty surrounding U.S. policies and stretched valuations of the S&P 500 have prompted investors to seek opportunities in European markets. As of May 12, 2025, the Hang Seng index is in the top spot with a year to date gain of 20.01%. Germany's DAXK is in second with a year to date gain of 15.71% while France's CAC 40 is in third with a year to date gain of 6.24%.