European defence stocks climbed to new record highs on Thursday as investors reacted to Trump’s call for a dramatic increase in US military spending, pushing broader aerospace and defence indices sharply upward.
Trump’s proposal to boost the 2027 US defence budget to $1.5 trillion (up from a $901 billion allocation for 2026) helped spark renewed investor interest in defence contractors on both sides of the Atlantic. European arms makers such as Britain’s BAE Systems led the gains, with its shares jumping more than 6%, while Germany’s Rheinmetall, Italy’s Leonardo and others also posted solid gains.
BAE Systems // Shutterstock
The rally underscores how geopolitical tensions (from Russia’s war in Ukraine to broader concerns over global security) are driving demand for military equipment and spurring confidence in defence-sector earnings. The European aerospace and defence index rose as much as 2-3% before settling slightly lower, marking an all-time high for the benchmark.
Some analysts note the momentum reflects not just Trump’s spending ambitions but also expectations of increased defence budgets among European governments themselves. The combination of robust demand and heightened security fears has encouraged a steady flow of institutional capital into defence-related equities this year.
However, broader European markets were mixed, with some sectors lagging behind as investors weighed the impact of other economic data. Still, the strength in defence shares highlights how military spending and geopolitical risks are increasingly shaping market sentiment in 2026.