European Defence Stocks Surge Amid Calls for Increased Military Spending
European aerospace and defence stocks saw a sharp rise on Monday as European political leaders have begun to push for an emergency summit on the Ukraine war. The calls for the summit come amid growing pressure from the U.S. for NATO allies to increase their military spending. The renewed focus on military spending follows ongoing geopolitical tensions and security threats, which have driven consistent growth in the defence sector over the past three years.
By early trading, major European defence firms, including Germany’s Rheinmetall, Sweden’s Saab AB, Britain’s BAE Systems, Italy’s Leonardo, and France’s Thales, had gained between 4.3% and 8.3%. This surge consequently pushed the STOXX Aerospace and Defence index up 2.7% to a record high. The index has already more than doubled in value since Russia’s invasion of Ukraine three years ago.
The broader European stock market also reacted positively, with the STOXX 600 index increasing by 0.2% on the day. Investors appeared optimistic about increased defence spending, particularly in response to heightened security concerns across Europe.
U.S. to potentially face spending cuts in defence sector
At the same time, defence contractors are facing uncertainty in the U.S. due to potential budget cuts. The Trump administration’s newly launched Department of Government Efficiency (DOGE) review is examining major defence programs with a focus on cost reduction. This could impact American defence giants such as Lockheed Martin, RTX Corp. (formerly Raytheon), General Dynamics, and Northrop Grumman.
Reports indicate that the U.S. defence sector receives over $200 billion annually in federal contracts, with some firms getting nearly half of their revenue from government spending. Programs related to fighter jets, missile defense systems, and naval expansion are under review by DOGE and could face budget reductions if DOGE determines that they are receiving too much government funding.
Despite the potential spending cuts in the U.S., NATO’s push for increased defence investment may offset some of the risks for contractors. European leaders are under growing pressure to contribute more to collective security, creating potential new opportunities for defence firms outside the U.S..
While U.S. budget constraints may present challenges, European stocks remain on an upward trajectory as governments prioritize defence. Analysts will be watching how NATO’s spending commitments develop in the coming months, as well as the impact of the U.S. review on major defence programs.
