European defense stocks surged Monday as EU countries committed to boost military spending while the U.S.-Ukraine relationship reels. BAE Systems rocketed in London, while U.S.-based RTX and General Dynamics rose in afternoon trading, withstanding the S&P 500 down draft. The advance followed Friday's explosive Oval Office meeting between President Donald Trump and Ukrainian President Volodymyr Zelenskyy.
Defense stocks initially surged in November after Trump's election. But the group's performance has been generally mixed since then amid a mixed earnings outlook, a pullback in support for Ukraine's war of self-defense, and talk of defense-spending cuts from Trump and Elon Musk.
Trump-Zelenskyy Meeting
Trump sent Zelenskyy home without signatures on an agreement that would have given the U.S. rights to a share of revenue from investments into new rare-earths mining projects in Ukraine. That deal aimed to give the U.S. a stake in Ukraine's future and serve as a deterrent to keep Russian President Vladimir Putin from reneging on a potential peace agreement. But Zelenskyy made clear that Ukraine also needed security guarantees from the West, since Putin has a history of breaking deals.
In the meeting, Trump accused Zelenskyy of "gambling with World War III" by pitting the U.S. and NATO against Russia. Later, Trump posted that the Ukrainian leader "is not ready for peace if America is involved, because he feels our involvement gives him a big advantage in negotiations."
EU Pledges More Defense Spending
On Sunday, following talks in London, French President Emmanuel Macron called for European nations to raise defense spending to between 3% and 3.5% of GDP.
"We urgently have to rearm Europe," said European Commission President Ursula von der Leyen. She will unveil a comprehensive plan to do just that on Thursday.
Among the aims is "turning Ukraine into a steel porcupine that is indigestible for potential invaders."
The Bruegel think tank has estimated that Europe could need 300,000 more troops and an annual defense spending increase of at least $262 billion to defend Europe, assuming U.S. withdrawal from Europe.
Deutsche Bank's Robin Winkler, chief Germany economist, wrote that the county may set aside 20% of GDP for defense and infrastructure spending in "a fiscal regime shift of historic proportions" in response to Trump tariff and foreign policies.
RTX, BAE And ESLT
RTX, formerly Raytheon Technologies, rose 0.5% to 134.25 in Monday afternoon stock market action, while the S&P 500 fell 0.75%. RTX is in a buy zone from a 14-week cup base, according to a MarketSurge analysis.
RTX stock stands out for its recent performance among the biggest U.S. defense contractors. RTX is ranked No. 5 in the Aerospace/Defense industry group by IBD Stock Checkup, based on both technical and fundamental factors. Among other S&P 500 defense plays, Lockheed Martin rose 0.8%, General Dynamics 0.6%, L3Harris Technologies 1% and Northrop Grumman 2.2%.
Israeli defense contractor Elbit Systems ranked No. 3 by IBD Stock Checkup, surged 8.1% Monday amid prospects for more contracts from Europe.
London-based BAE Systems, Europe's largest defense contractor, vaulted 13.9%, gapping beyond buy territory. Airbus jumped 6.2% to 46.07, leaping past a 43.92 cup-with-handle buy point.
AeroVironment, which supplies to military drones to the U.S. and foreign governments, slipped 3.1%.
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