Trump's Potential Win: A Golden Opportunity for European Defense Investors?

A potential Trump win in the U.S. election could trigger volatility in European defense stocks but present lucrative buy-the-dip opportunities for savvy investors.

Editorial Team (ET)June 17, 2025

With the U.S. presidential election just around the corner, market analysts are closely eyeing potential outcomes and their impacts on global stock markets. A Donald Trump victory could usher in significant shifts, especially for European defense stocks, as his stance on NATO spending and U.S. military commitments in Europe raises both concerns and opportunities. Analysts are forecasting potential short-term volatility, yet there’s a silver lining — a Trump win might present an attractive buy-the-dip opportunity for investors, particularly in the European defense sector.

Why a Trump Victory Matters for European Defense Stocks

Trump has long been vocal about rebalancing U.S. contributions to NATO, urging European allies to meet their defense spending commitments. Should he win, his policies could lead to reduced American military support in Europe, effectively pushing NATO members to strengthen their defense budgets and bolster their own capabilities. In turn, this could spell positive growth for European defense companies.

Under Trump’s proposed policies, European countries may accelerate defense spending to reach the 2% GDP target or beyond. This would directly benefit defense companies like Germany’s Rheinmetall, Sweden’s Saab, and Italy’s Leonardo, which have already seen stock increases of 230-360% since the onset of the Russia-Ukraine conflict.

Short-Term Volatility with a Trump Win

One of Trump’s pledges includes a rapid resolution to the Ukraine conflict. If fulfilled, this could lead to significant fluctuations in defense stocks. Analysts at JPMorgan have warned investors to brace for potential declines in defense stocks leading up to the November 5 vote, especially if peace negotiations gain traction.

Given the uncertain environment, JPMorgan has advised clients to hedge their positions against possible short-term drops. While a ceasefire could initially prompt a sharp decline, it’s also likely that these stocks will recover, driven by continued structural growth in the defense sector.

European Defense Stock Performance Since 2022

Since Russia’s invasion of Ukraine in 2022, European defense stocks have been on an impressive growth trajectory. Major companies like Rheinmetall, BAE Systems, and Thales have benefited from increased demand for military equipment, seeing growth rates from 70% to over 300% over this period.

France’s Thales and the UK’s BAE Systems have also made significant gains, rising 70% and 100%, respectively. Their growing appeal stems from the expanding defense budgets of European nations, which are now prioritizing domestic defense manufacturing and capabilities.

Market Dynamics in Case of a Trump Victory

If Trump’s policies result in a Ukraine ceasefire, Citi estimates suggest that European defense stocks could face an initial drop of up to 20%. However, seasoned investors are seeing this potential drop as an entry point to add exposure to high-growth companies at lower prices.

According to Morgan Stanley’s data, around 72% of global funds currently lack exposure to the European defense sector. This gap suggests a strong likelihood of fresh inflows into these stocks, which could further support a long-term rally, especially as Europe aims for defense self-sufficiency.

The Strategic Value of ‘Buy-the-Dip’

Rob Hansen, a portfolio manager at Vontobel, suggests that a Ukraine ceasefire might indeed cause a drawdown in defense stocks, but he believes this could be an ideal moment to invest in companies positioned for structural growth. According to Hansen, the European defense industry has a promising growth outlook, driven by geopolitical shifts and a sustained focus on military modernization.

Hansen and other market strategists argue that while a temporary drop is expected, the defense sector’s structural growth path will remain intact. This presents an enticing opportunity for investors with a long-term perspective, particularly as the European defense market undergoes a period of transformation.

Spotlight on Key European Defense Stocks

Germany’s Rheinmetall has been a standout in the defense sector, with its shares seeing explosive growth since 2022. Known for its heavy military equipment, Rheinmetall stands to benefit from any increase in German defense spending, especially if Trump’s policies accelerate the demand for European-led security initiatives.

Sweden’s Saab has also capitalized on rising defense budgets. With expertise in aerospace and defense systems, Saab is strategically positioned to support European nations as they bolster air and missile defense capabilities.

Leonardo, based in Italy, has also experienced significant growth as European nations focus on self-reliant defense strategies. With a diversified portfolio spanning land, sea, and air systems, Leonardo could see further growth as the demand for European-made defense equipment rises.

The Ceasefire Factor and Stock Market Reactions

Citi analysts predict that a ceasefire in Ukraine could prompt an immediate but potentially brief dip in defense stocks. While this decline may discourage some investors, others view it as a buying opportunity, anticipating that demand for defense equipment will remain robust due to ongoing regional tensions.

Vontobel’s strategy, shared by portfolio manager Rob Hansen, is to capitalize on any dips caused by a ceasefire announcement, believing that the market will rebound. This strategy highlights a calculated risk approach to investing in defense stocks during uncertain political climates.

Comparison with a Kamala Harris Win

In contrast, a win for Kamala Harris would likely result in the continuation of current U.S. policies in Europe, maintaining the status quo. For investors, this means less immediate market volatility, though it may also mean fewer aggressive buy-the-dip opportunities in European defense stocks.

For investors focused on long-term growth rather than short-term volatility, a Harris win may provide steady, predictable returns, albeit with potentially lower growth than in the high-stakes environment of a Trump presidency.

Analyzing Market Inflows and Investor Sentiment

The relatively low exposure of global funds to European defense stocks, as reported by Morgan Stanley, suggests untapped potential. If a Trump victory drives greater interest in the sector, this influx could fuel a robust rally as investors look to capitalize on Europe’s increased defense spending.

Investor sentiment remains cautiously optimistic, with many waiting to see the election outcome. The anticipation of potential market turbulence has kept some on the sidelines, but this could quickly change post-election, especially if a Trump win revitalizes the defense sector’s growth prospects.

Conclusion: Navigating the European Defense Market in a Trump Scenario

A potential Trump victory in the upcoming U.S. election brings both risks and opportunities for investors eyeing European defense stocks. While a Ukraine ceasefire might trigger an initial dip, seasoned investors see this as a prime chance to buy the dip and capitalize on long-term growth trends within the sector. As European nations re-evaluate their defense capabilities and budgets, companies like Rheinmetall, Saab, and Leonardo stand well-positioned for continued growth. For those ready to navigate the potential volatility, a Trump win could open the door to substantial gains in Europe’s defense market.

Donald Trump

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