German stocks have been on a tear in 2025, vastly outperforming both their European peers and U.S. counterparts.
The DAX index, Germany’s flagship benchmark, is up over 20% year-to-date, outshining the broader Stoxx 600, which has posted a more modest 8% gain.
In stark contrast, the S&P 500 in the U.S. has been hovering just above flatline for the year, underlining the scale of outperformance coming out of Europe’s largest economy.
Leading the charge in Germany is defense company Rheinmetall, which has seen its stock soar more than 200% amid a spike in defense spending by the German government.
The rally is not isolated to defense: industrials, utilities, and even segments exposed to artificial intelligence have all contributed to the market’s strength.
Why are German stocks flying high in 2025?
According to Laura Cooper, Global Investment Strategist at Nuveen, a major catalyst has been Germany’s aggressive fiscal stimulus, announced in March.
Speaking with CNBC, she noted that investors have been pricing in both defense and infrastructure spending, which has fueled the DAX’s double-digit surge.
“It’s quite remarkable to see the significant double-digit gains in the German DAX,” Cooper said in the interview, adding “this is largely based on that game-changing fiscal stimulus … tilted more towards those defense stocks.”
The DAX’s sector composition has also helped it outperform. Its heavy allocation to industrials and utilities aligns well with the current macro backdrop, especially as infrastructure upgrades and AI applications gather momentum globally.
Cooper also pointed to artificial intelligence as a growing tailwind for these sectors, particularly as Europe ramps up digitization.
Is it time to take profit in German stocks?
With such sharp gains in a short span, investors are beginning to question whether now is the time to lock in profits.
While Cooper doesn’t advocate exiting the market entirely, she does warn of stretched valuations, especially in defense.
“I don’t think necessarily this is a time for profit-taking,” she told CNBC in an interview today. “But we are going to see valuations come back into focus. The German DAX is trading at about 15 or 16 times its earnings, and that is stretched on a historical basis,” Cooper added.
Rather than selling out, Cooper suggests broadening exposure within Europe and perhaps even revisiting US equities, where strong tech earnings are starting to reawaken investor interest. The European rally may continue, she said, but gains are likely to be “more tepid” from here.
Investors should remain cautious, balancing optimism with prudent risk management as market dynamics continue to evolve.
Staying diversified and closely monitoring valuation shifts will be key to navigating this evolving landscape successfully.
In short, German stocks may still have room to run—but the easy money might already be behind us.
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