Economic struggles and tariff-related pressures cause Dax's collapse
The German stock market started the new month on a turbulent note, with the Dax index experiencing a 2.7% loss, closing at 23,426 points. The trade turmoil, economic concerns, and companies revising their outlooks have put pressure on the market.
Cancom, an IT service provider, was one of the hardest hit, losing 12% after issuing a profit warning. The company's reliance on the US market may have played a role in this decline, as German exports to the US have been on a downward trend for three consecutive months. US tariffs and trade tensions have created some challenges for German exporters, including mid-cap companies.
However, the broader economic environment is offering some support. German mid-caps are projected to see 35% earnings per share growth in 2025, thanks to strong domestic initiatives like a €500 billion infrastructure fund and corporate tax cuts, as well as their high international revenue exposure (about 60% internationally for DAX companies).
SFC Energy, listed in the SDax, is one such mid-cap that is benefiting from these growth drivers. Despite the pressure from US tariffs, the company significantly revised its annual outlook, although its stock took a steep 30% hit as a result.
Not all mid-caps have been affected equally. Daimler Truck, another Dax company, fell by 6.2% after revising its annual outlook downwards due to US tariffs and weakness in North America. In contrast, Commerzbank advanced by 0.7% despite the weak overall market.
The tech sector has also seen mixed results. SFC Energy, being an energy tech company, is distinct from the IT services provided by Cancom. Yet, the tariff effects on SFC Energy illustrate the broader export challenges faced by German mid-caps. Tech giants Amazon and Apple presented mixed results, further affecting the German stock market.
The euro gained 1.1% to 1.1548 dollars following weaker than expected US jobs data. The yield on ten-year German bonds fell slightly to 2.68%. The Euro Stoxx 50 and the MDax also experienced a 2.1% decline in the afternoon.
Trump's decision to impose 15% US import tariffs agreed with the EU on August 7, and his announcements of high tariffs against several trading partners, including Canada, Brazil, India, and Switzerland, are not favorable for free trade and the interconnected global economy. These actions have introduced export challenges and cost pressures for German mid-cap companies, but the structural growth tailwinds seem to be offsetting these headwinds.
In summary, while US tariffs and trade tensions introduce export challenges and cost pressures for German mid-cap companies, the broader economic environment—including fiscal stimulus, tax reforms, and international diversification—is supporting solid earnings growth projections for mid-caps including SFC Energy and Cancom in 2025. Export dependency differences and sector-specific factors influence the precise impact on individual stocks.
Investing in the German mid-cap industry may face challenges due to US tariffs and trade tensions, as evidenced by Cancom's 12% loss after issuing a profit warning. However, the financial growth prospects of mid-cap companies, such as SFC Energy, are projected to significantly improve by 2025, bolstered by structural growth tailwinds like fiscal stimulus, tax reforms, and international diversification.
