FRANKFURT (dpa-AFX) - On Wednesday, the DAX surpassed the symbolic 25,000-point threshold for the first time in its more than 37-year history. After a roughly 23 percent surge last year, Germany's leading index is continuing its strong run into 2026. The rally is also being fueled by the US stock markets, where the Dow Jones Industrial is now approaching its next major milestone at 50,000 points.

What is currently driving the markets?

With the US Federal Reserve and the European Central Bank both initiating interest rate cuts in 2024, major central banks have shifted gears. Inflation in the world's largest economy, the United States, and in the eurozone appears to be under control, clearing the way for "cheaper" central bank money. This makes loans for corporate investments and larger consumer purchases more affordable, which should stimulate the economy. Additionally, billions in infrastructure and defense spending from the German government are gradually reaching companies. The business environment is thus improving. According to market analyst Jochen Stanzl of Consorsbank, it also helps that the US attack on Venezuela did not escalate into a military conflict and that there are prospects for further declines in oil prices.

Why is the DAX still rising despite Germany's sluggish economy?

The DAX rally seems at odds with the recently lackluster economic conditions in Germany. Economic output shrank in both 2023 and 2024. For 2025, leading research institutes expect GDP growth of just 0.2 percent. In international comparison, the German economy is lagging behind. However, the 40 companies listed in the leading index operate globally and generate most of their revenues abroad. In Germany, positive impulses are expected soon from the 500 billion euro special fund, financed through new debt, which will provide additional investment in infrastructure and climate protection; the stock market has likely already priced in some of these effects. Defense spending has also increased significantly.

Which German companies are driving the rally?

Shares in the defense, artificial intelligence, and infrastructure sectors performed particularly well in 2025, propelling the DAX. Many of these companies remain among the leaders in early 2026, such as Rheinmetall and Siemens Energy. The energy technology group is experiencing a boom, with strong business in gas turbines as well as grid technology. Demand is being driven by the enormous electricity requirements of data centers amid the AI boom. Germany's infrastructure billions are also boosting demand among IT service providers: The government is once again investing more in digitalization, and small and medium-sized companies are also tending to invest more in new technology and software as business prospects brighten.

What does this mean for people in Germany?

Private investors are still advised not to simply buy last year's top-performing companies — despite the stock market adage "the trend is your friend," as trends often last longer than expected. Of course, today's losers can become tomorrow's winners if the situation fundamentally changes. Siemens Energy serves as a case in point: Due to problems at its Spanish wind power subsidiary Siemens Gamesa, its shares were among the DAX's weakest performers in 2023.

What do experts recommend?

Generally, investors are better off spreading their risks broadly, for example, through exchange-traded funds (ETFs). Focusing solely on Germany can be disadvantageous if investors limit themselves to their seemingly familiar environment, thereby taking on risks or missing opportunities. According to financial advice platform Finanztip, a savings plan based on a global ETF is suitable for long-term wealth accumulation.

Where do the risks lie?

Geopolitical tensions could put markets under pressure at any time, such as renewed trade disputes between the US and China or between the EU and China. The Taiwan conflict should not be forgotten, should China actually attempt to annex the island nation. A resolution to the war in Ukraine also seems unlikely in the short term, given Russia's behavior. Meanwhile, tensions are rising over Greenland between the US and Denmark, given increasingly sharp rhetoric from US President Donald Trump, who would like to see the resource-rich island under US control.

The sometimes very high valuations of many technology companies amid the artificial intelligence (AI) hype also pose risks, as expectations are high that these companies will make substantial profits from AI in the future. However, not all are succeeding yet; many business models still need to prove themselves, even if the situation is much more robust than during the dot-com bubble at the start of the millennium. Still, some observers fear that the bubble could soon burst, putting global stock prices under pressure. However, this would likely be more of a correction, opening up new opportunities — perhaps through a rotation of capital back into more traditional cyclical beneficiaries.

--- By Lutz Alexander, dpa-AFX ---