U.S. defense stocks mustered a modest rebound early Tuesday after European leaders on Monday held an emergency meeting in response to developments between the Trump administration and Russia. U.S. and Russian officials on Tuesday met in Saudi Arabia to discuss ending the war in Ukraine. The peace talks come after Vice President JD Vance on Friday criticized European leaders at the Munich Security Conference, and following comments from President Donald Trump about slashing the U.S. defense budget.
U.S. and Russian leaders on Tuesday met in Riyadh to host a meeting on ending the war in Ukraine — bypassing input from either Europe or Kyiv. The meeting, led by Secretary of State Marco Rubio and Russian Foreign Minister Sergey Lavrov, focused on restoring U.S.-Russian relations as well as a potential end to the war. However, Ukrainian President Volodymyr Zelenskyy said they won't accept any outcome from the discussions if Kyiv does not take part.
Meanwhile, Russia has hardened its stance amid the discussions. Moscow now says it is "not enough" for NATO to deny Ukraine membership. The defense alliance must revoke a 2008 promise to admit Ukraine at a future, unspecified date, Reuters reported. Zelenskyy has stated that NATO membership is a key to maintaining Ukraine's sovereignty. The U.S. appears increasingly unlikely to support that guarantee. Defense Secretary Pete Hegseth last week said the Trump administration does not view NATO membership as part of the solution. Hegseth also stated that it is unrealistic to return to Ukraine's pre-2014 borders, suggesting that Russia's annexation of Crimea and insurgent gains in Donbas could stand.
President Trump last week also suggested halving the U.S. military budget. Trump believes he could convince Russia and China to do the same. Trump also expects the three countries could begin denuclearization talks once the conflicts in Europe and Middle East are settled. However, officials from China have stated the U.S. and Russia must first reduce their arsenal before considering talks, according to reports.
Europe Calls Emergency Meeting
The sudden policy shift has put European leaders on high alert. French President Emmanuel Macron on Monday called for an emergency meeting in Paris to discuss the developments in Ukraine. Several leaders from Germany, Italy, Poland Spain, the U.K., Netherlands, Denmark and European Union attended the meeting. British Prime Minister Keir Starmer suggested committing troops if there is a lasting agreement, but noted there must be a U.S. backstop to effectively deter Russia from attacking again.
Mette Frederiksen of Denmark warned that a quick cease-fire deal would allow Russia to remobilize for another attack at Ukraine or elsewhere. "Russia is threatening all of Europe now, unfortunately," she told reporters.
Meanwhile, Zelenskyy over the weekend suggested creating an "armed forces of Europe," because the U.S. may no longer be depended on for support.
German-based Rheinmetall, which manufacturers tanks, drones, air defense systems, aircraft cannons and ammunition, and sections for the F-35 fuselage, rallied more than 13% on the Frankfurt Stock Exchange on Monday. On Tuesday, shares spiked early, then pared gains to a slight uptick.
U.K.-based BAE Systems popped almost 9% on Monday, with shares rising about 1% on Tuesday. BAE Systems designs, manufacturers and services support combat vehicles, as well as providing munitions, artillery systems and missile launchers. The company also manufacturers and assembles parts of the F-35 airframe as well as electronic systems, and is involved in production for the Eurofighter Typhoon.
Vance Comments
Elsewhere, VP Vance set out new U.S. diplomatic positions, further distancing the administration its European allies during his comments at the Munich Security Conference on Friday.
Vance argued that Europe's greatest threat came not from Russia or China, but "from within," and criticized leaders for shunning far-right political parties. The Vice President also downplayed Russian interference in democratic elections and criticized requirements for social media companies to limit disinformation and hate speech.
Vance's speech came about a week ahead of Germany's national elections, which many project could swing sharply right. The Alternative for Germany (AfD) party, which has been courting the Trump administration and received backing from Elon Musk, is currently polling in second place. It marks the first far-right party in German to hold such a position since World War II. The AfD has been classified as an extremist, anti-immigrant part that aims to "eliminate the free democratic basic order," according to a 2023 report by the German Institute of Human Rights.
Leaders of the AfD have been penalized for using Nazi slogans and imagery, trivializing the Holocaust and threatened to deport German citizens of non-ethnic-German heritage.
Multiple European leaders, including German Chancellor Olaf Scholz, rebuked Vance's comments following the speech.
Defense Stocks
U.S. defense stocks rebounded modestly Tuesday on the developments in Europe, lagging Monday's rally by their Europe-basded peers.
Lockheed Martin rose 1.3%, while RTX climbed 1.1%.
Northrop Grumman, GE Aerospace and General Dynamics advanced less than 1%.
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