European Defence Stocks Surge Following Trump’s 2024 Election Victory, Amid NATO Spending Pressure

Trump’s Victory Fuels European Defence Stocks Rally

European defence stocks surged following Donald Trump’s re-election, as investors anticipate a significant increase in European military spending. Trump’s past rhetoric on NATO burden-sharing and potential cuts to U.S. military aid has raised expectations that European nations will bolster their defence budgets. Stocks of leading defence firms Leonardo SpA, Rheinmetall AG, and Hensoldt AG have already posted gains of 17%, 22%, and 18%, respectively.

Anticipated Boost in European Defence Budgets

Trump’s previous administration stressed that the U.S. was unfairly covering NATO’s defence costs. With his return to office, European nations may increase military funding to compensate for potential reductions in U.S. support. This expectation has driven up European defence contractor stock prices, as analysts predict higher government spending on military modernization and weapons procurement.

NATO Spending Targets Under Renewed Pressure

In 2023, only nine NATO countries met the alliance’s 2% GDP defence spending goal. Trump’s re-election is expected to intensify pressure on Germany, France, and Italy, three of the largest European economies that have yet to meet this target. Germany, in particular, has signaled plans to raise defence spending to 3%–3.5% of GDP, reflecting concerns over security commitments.

Potential U.S. Military Aid Cuts and European Response

A key driver of increased European defence spending is the possibility of U.S. military aid reductions, especially for Ukraine. The U.S. currently contributes €40 billion annually to military assistance in Ukraine. If Trump scales back this aid, Europe may be forced to increase its defence contributions, further accelerating military expenditure across the continent.

Defence Contractors Positioned for Growth

As European defence budgets expand, major defence firms stand to benefit. Rheinmetall, Leonardo, and Hensoldt are preparing for an uptick in military orders. Increased pressure to strengthen Europe’s defence capabilities is expected to provide a long-term growth opportunity for these contractors.

Changing Transatlantic Relations and Security Commitments

Trump’s return to office is likely to reshape transatlantic relations, forcing European nations to bear a greater share of security costs. This shift could significantly alter NATO’s financial structure, impacting long-term European defence strategies and global military alliances.