FRANKFURT (dpa-AFX) - Positive sentiment is sweeping across the German and European stock markets: right at the start of the new year, both the DAX and its Eurozone counterpart, the EuroStoxx 50, soared to record highs; the DAX traded above the 25,000-point mark for the first time. The strong momentum from the previous year—DAX up 23 percent, EuroStoxx up 18 percent—appears to be continuing seamlessly. Investors are betting on a revival of the German, and by extension, the European economy. However, it will not be possible without tailwinds from overseas, and therein lie potential stumbling blocks. Investors should also not ignore possible negative surprises from political hotspots around the globe.

"Geopolitically, the situation remains tense, but there is a display of composure on the financial markets," summarize the experts from the market service Index-Radar. While political risks make headlines, the indices are climbing to new records. "In our view, three forces are driving buying appetite—technology, defense, and an oil market that, if you think outside the box, gives monetary policy more options."

The reasoning: should the largely dormant oil industry of the South American state Venezuela be revived, oil prices could fall further. This could also reduce inflation, since oil is a basic input for many products. Central banks such as the US Federal Reserve and the European Central Bank (ECB) would thus have more leeway for further interest rate cuts.

Looking at the United States, experts expect further interest rate cuts over the course of the year, while the ECB should have reached its target for now. The relatively low interest rates with which the Eurozone enters 2026, a year associated with hopes of economic recovery, benefit both the public sector and companies.

In this environment, the economic policy of the German federal government plays a key role, explains Robin Winkler, Chief Economist for Germany at Deutsche Bank Research. "The ECB's interest rate cuts are complete, and monetary policy will no longer provide additional expansionary impulses. Special funds for infrastructure and climate neutrality must be used in a targeted manner to achieve long-term growth effects." Nevertheless, after years of stagnation, a recovery of the German economy is in sight for 2026.

Stock market strategist Mislav Matejka from JPMorgan echoes this sentiment. After a pause at European stock exchanges towards the end of 2025, he is optimistic about the first half of the year. Germany's economic stimulus measures should increasingly take effect. Some investors may also be overlooking second-round effects from a revival of the Chinese economy for European companies, from which not only mining groups stand to benefit.

A ceasefire in Russia's war of aggression against Ukraine could also provide a tailwind, Matejka adds. Such a step towards ending the war would lower energy prices and improve the overall sentiment for equities. Many experts in this context point to the reconstruction of destroyed Ukrainian infrastructure and numerous towns and villages. Construction companies, manufacturers of building materials, and energy technology, for example, would be among the beneficiaries.

Chief economist Ulrich Kater from Dekabank is fundamentally optimistic, but also cautions not to overlook the risks. The current transformation of the global economy is triggering enormous investments. "This ranges from government infrastructure programs to the new global technological race for the best artificial intelligence (AI)." This generates innovation, growth, and higher corporate profits, "but new geopolitical rivalries can also quickly become stumbling blocks for the world economy."

According to Kater, the list of risks ranges from further military conflicts to excessive lending to technology firms. "If any of these risks were once again to disrupt supply chains or consumer demand, stock markets would swing downward again."

The vulnerability of global supply chains was recently demonstrated by the dispute over the supply of rare earths. China repeatedly uses its dominant position in mining these raw materials, which are crucial for modern technologies, as leverage in trade disputes with the US and the EU. US tariff policy under President Donald Trump is also likely to remain erratic.

In addition, China could ramp up its approach regarding Taiwan, which would escalate the conflict with the US. In that case, global supply chains for European companies would also be at risk. In his New Year's address, China's President and Party Leader Xi Jinping reaffirmed his claim to reunification with Taiwan.

The US is also causing unease with President Trump's declared claims to the resource-rich Arctic island of Greenland, which belongs to Denmark. The EU and numerous European states have criticized the US government's intentions. At times, Trump had spoken of buying Greenland, but also did not rule out deploying the US military.

For all the optimism about artificial intelligence (AI), robotics, and the transformation of the global economy, investors should also brace themselves for greater volatility in the stock market in 2026. All in all, however, experts remain optimistic for the current year. According to current data from news agency Bloomberg, strategists at major banks and investment houses see the DAX at an average of 26,350 points at the end of 2026, with the broad Stoxx Europe 600 at an average of 620 points. Based on current levels, this would represent increases of around five percent and about three percent, respectively./mis/ck/zb

--- By Michael Schilling, dpa-AFX ---