Chart of the Week: Trump’s rhetoric fuels European defence stocks further

European defence stocks have had a strong start to the year, with the Datastream euro area defence index climbing roughly 25% since President Trump’s inauguration in January. Both euro area and US defence stocks have outperformed their broader markets since the onset of the Russia-Ukraine conflict in 2022, but the euro area’s outperformance has accelerated amid the new president’s repeated calls for Europe to take greater responsibility for its own security. Mr Trump has told European NATO members they should raise defence spending to 5% of GDP, up from the current 2% target (which many European nations fall short of). Spending announcements across Europe are anticipated, with Denmark already outlining plans to boost its defence budget beyond 3% of GDP over the next two years, from 2% in 2023. In contrast, US defence stocks have dropped nearly 10% since Mr Trump took office, as investors anticipate potential cuts to US military spending. With Europe ramping up military expenditure in response to geopolitical pressures, the momentum behind European defence stocks shows no signs of slowing.

Refresh this chart in your browser | Edit the chart in Datastream

The views expressed in this article are the views of the author, not necessarily those of LSEG.