This Rare Market Dynamic Preceded The Dot-Com Crash — It's Back In 2025

German stocks are crushing Wall Street this year, recording their strongest outperformance against U.S. equities since 1999 — a market dynamic that last emerged just before the infamous burst of the dot-com bubble.

Through June 20, Germany's DAX Index has climbed 17.5% year-to-date, while the Vanguard S&P 500 ETF Trust VOO has gained only 1.9%.

The six-month performance spread between the two benchmarks now stands at nearly 16 percentage points — the highest gap since the second half of 1999.

Currency effects further amplified the gains. The iShares MSCI Germany Index Fund EWG – a U.S.-listed ETF tracking German equities and adjusting for exchange rate moves — has soared 28% year-to-date, as the U.S. dollar weakened 10% against the euro.

Why Are German Stocks Outperforming?

A mix of aggressive fiscal expansion, monetary easing, and global investor rotation has put Germany at the center of a rare equity resurgence.

In March 2025, Germany's Parliament approved a constitutional amendment that exempts military and infrastructure spending from the country's strict "debt brake" law.

This legal shift enabled the government to create a massive €500 billion ($565 billion) infrastructure fund, aimed at financing green energy, digitalization, and regional development through 2035 — all off-budget to bypass constitutional debt limits.

Additionally, Germany committed to raising defense spending well beyond 3% of GDP — aligning with NATO’s Readiness 2030 and the broader €800 billion ($900 billion) ReArm Europe plan. This military push has sparked investor enthusiasm in defense stocks and industrial suppliers.

At the same time, the European Central Bank has aggressively cut rates by a cumulative 75 basis points during the first half of 2025, bringing the deposit rate down to 2% in June, amid cooling inflation.

Meanwhile, the U.S. market has faced headwinds. President Donald Trump's aggressive tariff push fueled trade uncertainty and triggered a first-quarter GDP contraction, as businesses rushed to import goods ahead of higher duties set for April.

The Federal Reserve has kept interest rates unchanged in a 4.25%-4.50% range, despite declining inflation.

Rheinmetall Leads The Charge

A handful of key outperformers have driven Germany's stock rally.

Defense heavyweight Rheinmetall AG RNMBF is up a staggering 181% year-to-date, contributing 356 basis points to the DAX's total year-to-date return.

Other top gainers include Siemens Energy AG SMEGF, up 71.7%, Commerzbank AG CRZBY, up 83%, and Deutsche Bank AG DB, which has gained 47%, each providing significant contributions to index performance.

History Echoes 1999?

The last time German stocks outpaced their U.S. counterparts this sharply was in late 1999. Then, too, global investors rotated into European equities amid optimism about reforms and tech-driven growth.

Yet that outperformance came at the height of global market euphoria: the S&P 500 peaked at 1,550 in March 2000, then plunged 45% over the following three years.

Whether 2025's surge ends in sustained growth or a speculative overshoot remains to be seen.

But for now, Germany is among the leaders in global equity markets — and echoing the late 1990s in ways that seasoned investors may not want to forget.

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