Your Weekly German Stock Review (10/27/2014 – 10/31/2014)

In this weekly feature, we’ll give a brief snapshot of the big stories and big stock moves that shaped the markets.

Figures in this article reflect prices as of market close on 10/30/2014

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The major indices

After a slight drop over the weekend that put the index back under 9,000 at Monday’s open, the DAX rose for the week, closing above 9,100 on Thursday, continuing what is starting to seem like a steady climb towards the 9,600s of a month ago. The MDAX (the next 50 largest German stocks, excluding tech), the TecDAX (the 30 largest tech stocks), and the HDAX (all stocks on the DAX, MDAX, and TecDAX), were all up, although all three showed better performance than the DAX in the latter part of the week.

One Step Forward, Two Steps Back

Last week, all eyes were on the banks, as the European Central Bank’s stress test results were due out on Sunday. A collective sigh of relief could be heard as all major banks – including Deutsche Bank (ETR: DBK) (FRA: DBK) and Commerzbank (ETR: CBK) (FRA: CBK) – passed the tests. The markets posted big gains in response.

However, the exuberance was short-lived. Two hours later, the Ifo Institute, based in Munich, released its German Business Climate Index, which fell for the sixth consecutive month in October, signaling, in the words of Ifo President Hans-Werner Sinn, that “economic prospects have worsened even further” in Germany. This triggered a selling spree that nearly erased all of the morning’s gains.

Adding to the bad news, the Association of German Chambers of Commerce and Industry predicted the German economy would only expand by 1.3 percent this year and just 0.8 percent in 2015. The markets shook off the bad news, though, and still managed to post modest gains over the course of the week, aided by a Thursday report from the Federal Labor Office that German unemployment fell unexpectedly in October.

For Halloween, This Week’s Tricks and Treats

TREAT: STRATEC Biomedical AG (ETR: SBS) (FRA: SBS) had an excellent week, in which it was a top gainer in the HDAX on Monday (up 1.37%, 3^rd highest gain), Wednesday (up 3.59%, 5^th highest gain), and Thursday (up another 3.43%, 6^th highest gain). All this apparently because of last Wednesday’s report that net income, sales, and EPS for the first nine months of this year all handily beat last year. Analyst reaction was mixed, however, with DZ Bank recommending selling, Deutsche Bank moving it to “hold,” and Kepler Cheuvreux moving it to “Buy.” Since the announcement, STRATEC’s stock has risen more than 14%.

TRICK: Bavarian lender Münchener Hypothekenbank (STR: MTN-HPF) was the only German bank to fail the recent ECB stress tests. The bank has said they have already raised more capital to cover any potential shortfall.

TRICK: Lufthansa (ETR: LHA) (FRA: LHA) lowered its 2015 guidance for the second time this year, blaming a sputtering global economy. Its stock price sputtered in response, dropping more than 7% on Thursday.

TREAT: Bayer (ETR: BAYN) (FRA: BAYN) reported third-quarter earnings slightly ahead of expectations, largely due to strong pesticide sales. Analyst Bernstein raised the stock’s rating to “Outperform” from “Market perform” and the stock rose almost 2.5% on Thursday, up more than 4% for the week.

May your portfolio be full of treats, and no tricks: happy Halloween!