U.S. defense stocks have taken a major hit after President Donald Trump suggested the country could cut its military budget in half. Meanwhile, European defense companies are thriving as investors expect a boost in spending across the region.
Trump's Comments Shake U.S. Defense Industry
Trump on Feb. 13 floated the idea of significantly reducing the U.S. defense budget, which currently hovers around $1 trillion. He indicated plans to meet with China's Xi Jinping and Russia's Vladimir Putin to discuss global military spending cuts. "At some point, when things settle down, I'm going to meet with China and I'm going to meet with Russia, in particular those two, and I'm going to say there's no reason for us to be spending almost $1 trillion on the military … and I'm going to say we can spend this on other things," Trump said.
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Markets reacted quickly, with major U.S. defense stocks dropping. Lockheed Martin LMT, Northrop Grumman NOC, General Dynamics GD, and Raytheon Technologies RTX all slipped on the news. But this downturn is just a continuation. They have been in freefall following reports that the Department of Defense is preparing for spending cuts ahead of an audit by the Department of Government Efficiency, championed by Elon Musk.
Europe's Defense Stocks See a Boom
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While U.S. companies struggle, European defense stocks are soaring. Investors are betting on increased military budgets across Europe as the region faces pressure to boost its own defense spending. Rheinmetall saw a surge of 21.89% in the last 30 days and Thales climbed 19.23%. Others, like BAE Systems and Airbus, saw an increase but later stabilized.
European leaders, including UK Prime Minister Keir Starmer, have been vocal about the need for higher defense spending. Additionally, French President Emmanuel Macron was hosting an emergency summit on the Ukraine war, where military budgets were a major topic after Trump surprised European allies in NATO and Ukraine by revealing he had spoken with Putin without prior consultation and planned to initiate a peace process.
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Wall Street Vs. European Markets
The impact of Trump's presidency on global markets is already showing. Since his inauguration, European stocks have outperformed U.S. markets. As the Financial Times reported, the Stoxx Europe 600 has gained 5.2% compared to the S&P 500's 2.5% increase. This rally happened because the U.S. hasn't placed new tariffs on European goods, there's hope for peace talks in Ukraine, and the European Central Bank has made borrowing easier by lowering interest rates.
However, the outlook remains uncertain, as Trump has announced new tariffs on European cars, pharmaceuticals, and chips, which briefly sent European stocks lower.
The Big Picture
Trump's unpredictable stance on military spending is sending mixed signals to investors. While he advocates for cost-cutting, he also emphasizes U.S. military strength, having signed an order to explore an “Iron Dome of America” missile defense system.
For now, European defense stocks are riding high, while U.S. companies brace for potential cuts.
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