The DAX (German equity index) reaches 26,400 by December 31, 2026 in the base case, 27,600 in the bull case and 22,800 in the bear case, on an energy-inflation shock decaying faster than the European Central Bank (ECB) assumed when it hiked in June, plus a record fiscal impulse that gets discounted in the second half.

The DAX closed at 24,833 points on July 21, 2026 (Trading Economics), roughly 1.4% above its December 31, 2025 close of 24,490.41 (Siblis Research) and about 4% below the 25,927.60 all-time high set this month. The number behind the call is German energy inflation, down from 10.1% year on year in April 2026 to 3.4% in June (Destatis). The thesis breaks if any one of four signals fires.

Key Levels:

• Asset: DAX, 24,833 points, July 21, 2026 — Trading Economics
• Base case: 26,400 by December 31, 2026 — 15.6x forward earnings held flat, per Siblis Research’s forward price/earnings (P/E) ratio at January 1, 2026
• Bull case: 27,600 — if the ECB holds through September and the HCOB German composite Purchasing Managers’ Index (PMI) tops 51.0
• Bear case: 22,800 — if the ECB hikes to a 2.50% deposit rate and German inflation tops 2.8%
• Resistance: 25,927.60 — all-time high, July 2026, Trading Economics
• Support: 24,490 — December 31, 2025 close and year-to-date break-even, Siblis Research
• Invalidation: weekly close below 23,800 — 2026 consolidation floor

Methodology and data window

Index levels are Trading Economics closes for the DAX (DE40) at July 21, 2026. Valuation inputs are Siblis Research year-end 2025 figures: trailing P/E 18.93, forward P/E 15.62, index 24,490.41. Macro inputs are the Federal Statistical Office (Destatis) June 2026 inflation release, the ifo Institute survey of June 24, 2026, HCOB/S&P Global German PMI data of July 3, 2026, and the ECB decision of June 11, 2026. Fiscal figures are Federal Ministry of Finance budget documents. Caveats: the DAX is a total-return index, so its level embeds reinvested dividends, and the July PMI and ECB decision land after publication.

The data: a flat index sitting on a decaying inflation shock

The DAX has gone nowhere in 2026 after a 23% gain in 2025, its best year since 2019 (Trading Economics). That stall is a discount-rate story. The ECB raised its three key rates by 25 basis points on June 11, 2026 — deposit facility to 2.25%, main refinancing operations 2.40%, marginal lending facility 2.65% — its first hike in three years, after Middle East energy dynamics pushed the 2026 inflation projection to 3.0%.

Variable	Latest	Prior	Three months earlier
German CPI (y/y)	2.3% (June 2026)	2.6% (May 2026)	2.9% (April 2026)
German energy prices (y/y)	3.4% (June 2026)	6.6% (May 2026)	10.1% (April 2026)
ifo Business Climate	85.6 (June 2026)	85.0 (May 2026)	86.4 (March 2026)
HCOB German composite PMI	49.5 (June 2026)	48.8 (May 2026)	52.5 (January 2026)
ECB deposit rate	2.25% (effective June 17, 2026)	2.00%	2.00%
DAX level	24,833 (July 21, 2026)	25,927.60 (record, July 2026)	24,490.41 (Dec 31, 2025)

Sources: Destatis; ifo Institute; HCOB/S&P Global; ECB; Trading Economics; Siblis Research. Window: Dec 31, 2025 to July 21, 2026.

The reason this matters is arithmetic rather than narrative. German headline inflation printed 2.3% year on year in June 2026, down from 2.6% in May and 2.9% in April, and consumer prices fell 0.3% month on month (Destatis). Energy did nearly all the work: motor fuels fell 5.8% on the month, diesel 7.9%, heating oil 9.5%. Core inflation excluding food and energy stood at 2.5%. That combination — headline converging on target from above, driven by an energy base effect unwinding at roughly 300 basis points a month — is not the profile that justifies a second ECB hike. It is the profile of a central bank that bought insurance and can stop. For an index trading near 15.6x forward earnings, removing a second hike from the curve is worth more than a quarter of earnings.

“The risks to the inflation outlook are to the upside. If energy prices were to rise by more and for longer than currently expected, euro area inflation would increase further.”

— Christine Lagarde, President, European Central Bank (ECB monetary policy statement, June 11, 2026)

The mechanism: why the fiscal impulse gets paid in the second half

The second leg is Germany’s fiscal position, which the equity market has treated as a 2027 problem. The 2026 federal budget carries record public investment of €126.7 billion, 10% above 2025. Defence spending rises to roughly €82.7 billion, with NATO-definition spending at 2.8% of gross domestic product (GDP) this year and a plan taking it to 3.5% by 2029. Government investment including special funds moves from 1.3% of GDP in 2024 to 2.8% in 2026, on borrowing above €180 billion.

Equity markets discount fiscal impulses with a lag, because order books rather than appropriations move earnings. That lag is closing. German GDP grew 0.3% quarter on quarter in the first quarter of 2026 and 0.5% year on year, with Destatis attributing the expansion to higher household and government spending and rising exports. The ifo Business Climate Index rose to 85.6 in June from 85.0, with current conditions at 87.0 and expectations at 84.1 — a six-month high driven by firms upgrading their assessment of the present, not merely their hopes. Revisions are following: Deutsche Bank estimated on June 29, 2026 that STOXX 600 second-quarter earnings would grow 14% year on year against consensus of 12%, with autos posting their first positive quarter since 2023 and upgrades broadening across basic resources, chemicals and industrials — where DAX weight sits.

The steelman for the other side is serious. A deficit near 4.75% of GDP funded at a rising policy rate is not obviously equity-positive; it is fiscal expansion colliding with a tightening central bank, the classic setup for higher long-end yields and a compressed multiple. If the ECB reads German loosening as inflationary, June is the first hike of a series.

What the model misses

Three limits. First, the 15.62 forward P/E is a January 1, 2026 observation, not a live number; if 2026 estimates have been marked down since, the implied multiple at 24,833 is higher and the re-rating room smaller. Second, the DAX is a total-return construction, so a 26,400 target embeds a year of reinvested dividends and the price appreciation required is less than 6.3%. Third, the analogue is uncomfortable: in 2022 the German market priced an energy shock, then its resolution, then spent a year learning that industrial demand does not recover on the schedule gas prices do. A composite PMI of 49.5 is still contraction.

“Hope is back. However, before getting overly enthusiastic, even with today’s increase the Ifo index still remains below its pre-war level.”

— Carsten Brzeski, Global Head of Macro, ING (RTÉ, June 24, 2026)

What would invalidate this call

The base case breaks if ANY ONE of these four signals fires:

• The ECB raises the deposit rate to 2.50% or higher on July 23 or in September. The multiple leg assumes June was a one-and-done insurance hike; a second move says the Council is fighting wage effects, not base effects.
• German headline inflation re-accelerates above 2.8% year on year. That reverses the 60-basis-point disinflation of May and June and reinstates the channel the ECB cited.
• The HCOB German composite PMI falls back below 48.0. A relapse says the fiscal impulse is not reaching order books and revision breadth is a commodity-price artefact.
• A DAX weekly close below 23,800. That sits beneath the 2026 range and would mean the market has repriced the fiscal story, not paused on it.

What to watch next

The ECB Governing Council announces on Thursday, July 23, 2026 at 13:45 CET; July is not a projection meeting, so statement language on energy pass-through is the only signal. The ifo index for July follows days later — watch the expectations component, 84.1 in June. The HCOB flash German PMI for July, due July 24, must hold above the June composite of 49.5. Destatis publishes second-quarter GDP at month-end. On the chart, 25,927.60 decides pause or top.

FAQ

Why is the DAX flat in 2026 after gaining 23% in 2025?

The binding constraint moved from earnings to the discount rate. The ECB raised its deposit rate to 2.25% at its June 11, 2026 meeting, effective June 17, its first increase in three years, after Middle East energy dynamics pushed the 2026 euro-area inflation projection to 3.0%. A higher policy rate compresses the multiple even when earnings hold.

What is the DAX trading at relative to earnings?

Siblis Research recorded a trailing price/earnings ratio of 18.93 and a forward P/E of 15.62 at an index level of 24,490.41 on December 31, 2025. On that multiple the DAX sits far below US benchmarks, where the S&P 500 has traded nearer the mid-20s — the cushion the base case relies on.

How large is Germany’s fiscal impulse in 2026?

The 2026 federal budget carries record public investment of €126.7 billion, 10% above 2025, with defence spending near €82.7 billion and NATO-definition spending at 2.8% of GDP. Government investment including special funds rises from 1.3% of GDP in 2024 to 2.8% this year.

Will the ECB move again in 2026?

The Governing Council has not committed either way. Its June 11, 2026 statement said it “is not pre-committing to a particular rate path” and would follow a data-dependent, meeting-by-meeting approach. Staff projections show inflation averaging 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028 — consistent with a long hold.

Related: EUR/USD spread compression, the S&P 500 multiple case, the US 10-year term premium, the DAX’s weakening uptrend. Sources: ECB decision, June 11, 2026, Destatis June 2026 inflation release, ifo index, June 2026, Federal Ministry of Finance 2026 budget.

This article is informational analysis only and is not financial, investment, or trading advice. Foreign-exchange, commodity, and equity markets are highly volatile and can lose substantial value rapidly. Leveraged products carry total-loss risk and may exceed the initial margin posted. Past performance and historical correlations do not guarantee future results. Do your own research and consult a regulated financial adviser before making any investment decision.