By Brian Swint

President Donald Trump has sent defense stocks on a wild ride over the past few days.

Last Thursday, he said he wanted to cut military spending in half, sending the likes of Lockheed Martin, Northrop Grumman, L3Harris Technologies and other contractors lower.

But those stocks are climbing Tuesday as Administration officials meet with Russian counterparts in Saudi Arabia Tuesday to discuss ending the war in Ukraine. Ironically, any peace deal will likely herald increased government spending on defense--even if it's not necessarily the U.S. government making the outlays.

Europe hasn't committed as much to defense budgets as the U.S. in decades--France and Germany only recently brought up spending to the 2% of gross domestic product level called for by Nato members after Russia annexed Crimea in 2014. They're now under pressure to pick up the slack as security concerns grow and the U.S. opens talks with Russia.

That's sending European defense shares sharply higher. Germany's Rheinmetall is up 30% over the past five days, and was up 2% Tuesday. BAE Systems in the U.K. added 1.1% and is up 12% over five days. The sector has pushed Germany's Dax and the STOXX Europe 600 to record highs in recent days.

American firms could still see some benefit from increased European military spending, even if their biggest contracts are currently with the U.S. -- and with the situation remaining tense between China and Taiwan, sales to Asia could also rise. Taiwan is currently considering arms purchases of up to $10 billion from the U.S., Reuters reported, citing unidentified people familiar with the matter.

Lockheed Martin rose 1.5% in premarket trading -- heading into Tuesday the stock is down more than 5% over the past five days. Northrop Grumman was up 0.9%, and General Dynamics added 1.1%; L3Harris was up 0.5%. S&P 500 Aerospace & Defense Index closed 1% lower on Friday, but is still up 21% over the past 12 months.

Trump's decision to have his representatives meet with Russian counterparts is upending the geopolitical order and putting European nations on guard. Europe's leaders weren't invited to the meeting in Saudi Arabia, not even Ukrainian President Volodymyr Zelensky.

Write to Brian Swint at brian.swint@barrons.com

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February 18, 2025 06:08 ET (11:08 GMT)

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