European Defense Stocks Surge as Security Concerns Grow

European defense stocks soared Monday as investors braced for a surge in military spending across the continent. The STOXX Europe Total Market Aerospace & Defense index jumped 7.9% by early afternoon, its biggest one-day gain in five years, pushing its year-to-date rally past 30%. 

Germany’s Rheinmetall surged 12.9%, BAE Systems in the UK climbed 14.3%, and Italy’s Leonardo gained 12.1%, reflecting expectations that European governments will accelerate defense investments.

The latest market reaction comes as Europe faces growing uncertainty over its security relationship with the United States. 

EU leaders, along with representatives from the UK and Canada, gathered in London over the weekend to discuss defense cooperation and continued support for Ukraine. European Commission President Ursula von der Leyen stressed the urgent need to re-arm after years of underinvestment. 

The EU currently spends 1.9% of its GDP on defense, but French President Emmanuel Macron has suggested raising that figure to 3% or 3.5%. NATO leadership has echoed similar calls, urging European allies to increase military spending beyond 3% of GDP.

What Does This Mean for Me?

Economists warn that Europe can no longer assume unconditional US support in a future conflict. With trust between both sides of the Atlantic strained, markets are betting that European governments will move swiftly to ramp up defense budgets, strengthening domestic arms manufacturers in the process. This reality provides an opportunity for investors to place their bets on military stocks.