European Defense Stocks Drop on Ukraine Peace Plan News
European defense companies faced a sharp market correction, as news of a U.S.-backed 28-point peace plan for Ukraine prompted investor concerns over the future of military spending. The plan, presented to Kyiv by Washington, would concede to several of Russia’s key demands, potentially signaling a de-escalation in the conflict. While Ukrainian President Volodymyr Zelenskiy expressed willingness to work “honestly” on the proposal, he reiterated that Ukrainian interests would not be compromised.
The STOXX Europe Aerospace & Defense Index (.SXPARO) fell 3.1% by 1605 GMT, dropping as much as 3.9% earlier in the session. This underperformed the broader STOXX 600 index (.STOXX), which declined by 0.4%. Despite the recent dip, the defense index has surged over 200% since Russia’s full-scale invasion of Ukraine in February 2022.
Background: European Defense Sector Performance
European defense stocks have been one of the region’s best-performing sectors in 2025, buoyed by increased government defense budgets amid the ongoing conflict in Ukraine. Companies such as Germany’s Rheinmetall, TKMS, and Renk, Italy’s Leonardo, Sweden’s Saab, and Spain’s Indra have seen strong gains on expectations of sustained military modernization and security investments.
“Even if Europe feels blindsided, the peace plan could actually succeed, and leaders like Trump and Putin may not be swayed by market reactions,” said a Frankfurt-based trader, reflecting the market’s uncertainty.
Market Reaction and Company Impact
Shares of Germany’s Renk declined 8%, while Hensoldt, Rheinmetall, and TKMS dropped between 6% and 8%. Italy’s Leonardo, Sweden’s Saab, and Spain’s Indra also experienced losses of 4–5%. Analysts cited crowded valuations and high investor expectations for the sector as contributing factors to the selloff.
Hensoldt’s spokesperson warned that the market’s reaction misinterpreted the broader security landscape. “Even if the fighting in Ukraine ends, Europe is not automatically safe. Russia could redirect resources toward other targets,” the company stated. TKMS similarly emphasized the continuing need for strategic defense capabilities irrespective of conflict status. Rheinmetall declined to comment.
Expert Perspectives: Implications for Defense Spending
JPMorgan analysts suggested that the selloff could represent a “compelling entry point” for investors, noting that the U.S.-backed plan is unlikely to be accepted by Ukraine or European allies. “If the U.S. were able to impose this plan—unlikely in our view—it could be perceived as a de facto victory for Russia, potentially accelerating European defense spending beyond current projections,” the analysts wrote.
The recent decline underscores the sensitive interplay between geopolitical developments and defense sector performance. While peace initiatives may reduce near-term conflict risk, long-term strategic requirements, including modernization programs and deterrence capabilities, remain critical.
Looking Ahead: What to Watch
Investors and policymakers will monitor Ukraine’s response to the 28-point plan closely, as acceptance or rejection will directly influence European defense procurement and stock market sentiment. The sector’s performance in the coming weeks will likely reflect both geopolitical uncertainty and ongoing commitments to military modernization.
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