European stocks closed at a record high on Monday, driven by a surge in the defense sector. Investors are anticipating an increase in military spending across the region following comments from Ursula von der Leyen, Reuters reports. The pan-European STOXX 600 index climbed 0.5%, reaching an all-time high of 555.42 points. The aerospace and defense sector saw a 4.6% increase, marking its strongest performance since 2022.
The rally in defense stocks followed a statement from European Commission President Ursula von der Leyen, who suggested that military expenditures might be excluded from the EU’s strict fiscal rules. “European governments are ready to significantly expand their defense spending plans,” said Jack Allen-Reynolds, Deputy Chief Economist for the Eurozone at Capital Economics.
Market analysts believe that if these policies are implemented, European defense contractors could see long-term growth opportunities. Companies specializing in military technology, cybersecurity, and weapons manufacturing are already attracting heightened investor interest. The potential for increased government contracts and defense-related infrastructure investments is expected to drive further market gains.
Last week, STOXX 600 recorded its longest streak of weekly gains since 2024, outperforming major U.S. indices, Reuters notes. The sustained rally suggests growing confidence in Europe’s economic stability despite broader geopolitical uncertainties.
In addition to defense stocks, other sectors also showed strength. The industrial and technology sectors benefited from speculation that increased military budgets could lead to higher demand for advanced engineering, logistics, and AI-driven defense solutions. Analysts expect that European policymakers will soon unveil specific plans for budget reallocations, further shaping market expectations.
Meanwhile, energy stocks remained stable as oil and gas prices fluctuated in response to geopolitical tensions and supply chain disruptions. Some investors are also shifting their focus toward raw materials and energy providers that are crucial for military supply chains.
American markets were closed on Monday in observance of Presidents’ Day, which limited global trading activity. However, analysts predict that Wall Street will react to European developments when trading resumes, potentially leading to spillover effects in global defense-related stocks.
With European governments showing a strong commitment to enhancing their military capabilities, experts anticipate that the defense industry will remain a key driver of stock market performance in the coming months. Investors are closely monitoring further EU policy announcements, which could bring additional investment opportunities in the sector.
