European defence stocks recently lost some altitude, but the drop says more about valuations than peace prospects.
Shares in military suppliers fell after Donald Trump paraded a round of peace talks with Vladimir Putin, Volodymyr Zelenskiy and European leaders.
Deutsche Bank’s Jim Reid pointed to “speculation about a diplomatic breakthrough”, and this was reflected on prediction market Polymarket, where odds on a Ukraine-Russia ceasefire or even a 2025 peace deal briefly jumped.
However, Polymarket’s price spike was short-lived, and one can see why. Russia’s demands remain maximalist, with no sign of genuine compromise.
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Ukraine may not accept them, and security guarantees have yet to be agreed.
At best the summit played smoothly for Trump’s reality-TV script.
European defence stocks have become crowded trades, with valuations stretched after a blistering rally. The sector was overbought, leaving it vulnerable to profit-taking, even if the long-term case for higher spending remains intact.
Despite the recent stumble, valuations indicate a huge rearmament. With Nato members pledging to spend 5 per cent of GDP on defence and Russia’s threat undimmed, the case for Europe to keep arming is stronger than ever.
The peace vibes may have cooled stocks, but Europe’s war footing remains.
