Positive equity start despite political unrest – will it last?

The positive momentum from 2025 continues as investors now look ahead to the earnings season, which began this week, providing an initial gauge of whether the optimism is justified.

Despite increased political unrest concerning Venezuela, Greenland and, most recently, Iran, the markets have started the year on a positive note, buoyed by favourable growth prospects.

“Political unrest has not deterred investors. The year has begun with gains, and the focus remains on positive growth expectations – driven by fiscal stimulus packages, tax cuts and the prospect of further interest rate cuts in the US,” says Tine Choi Danielsen, Chief Strategist at PFA.

The global equity index (MSCI ACWI) has risen by 3.4 per cent in DKK since the turn of the year, with positive developments in Asian, US and European equities – including Denmark, where the C25 index has increased by 5.3 per cent.

Different drivers on each side of the Atlantic
In the US, optimism is still being fuelled by AI technology and the prospect of growth-stimulating interest rate cuts. Meanwhile, fiscal policy is expected to contribute to increased growth in both Europe and the US in 2026.

In the US, high stock prices have created greater vulnerability if the technological promises of AI fail to translate into real gains in the broader economy. In Europe, attention is focused on the implementation of Germany’s significant investment package and increased defence spending at a time when the region remains dependent on external energy and technology and is caught between the US and China. However, these are well-known risk factors that investors are monitoring but which, for now, do not seem to significantly dampen the overall growth optimism.

“The current optimistic outlook, with economic growth accompanied by low unemployment and limited inflation, is reminiscent of earlier periods. Both in the 1990s and the 2010s, we saw stock market rallies that lasted nearly a decade. There is no natural law stating that a rally must end after three years,” explains Tine Choi Danielsen.

Currency and trade wars still lurking in the background
For Danish and European investors, however, a weak dollar could continue to erode returns. This was evident in 2025, when the dollar fell sharply against the euro, diminishing gains from US investments. PFA’s customers managed to weather the turbulence well, as currency hedging was gradually increased throughout the year. Nevertheless, currency developments remain a key focus.

“Although the dollar appears to have stabilised, we are still monitoring developments closely. There remains a risk of further weakening, as the underlying factors have not changed – there is still uncertainty about the central bank’s independence and the US’s role in the global economy. At the same time, the US government continues to favour a weaker dollar,” says Tine Choi Danielsen.

She is also cautious about declaring the trade war over:

“Many trade agreements are temporary, and political unrest involving Iran, Venezuela and Greenland could lead to new trade sanctions. On the other hand, concerns about Americans’ purchasing power could influence the Trump administration’s decisions and lead to a more cautious approach,” she says.

Earnings season provides the first reality check
The coming weeks will provide an initial test of whether the optimism is warranted. The earnings season for the fourth quarter of 2025 is now underway, and investors will be particularly focused on companies’ guidance for 2026. As usual, the banks will report first, while the major tech giants are expected to release their results at the end of the month.