^{Photo: Bloomberg.com}

Markets Anticipate a Major Policy Milestone

European defense stocks rallied as German lawmakers prepared to approve one of the largest military procurement packages in the country’s postwar history. The proposal, worth more than €50 billion, is widely expected to receive parliamentary approval following deliberations by the Bundestag’s Budget Committee, which holds final authority over large-scale defense purchases.

The move marks another decisive step in Germany’s effort to rebuild its military capabilities after decades of underinvestment, a shift accelerated by the war in Ukraine and heightened security concerns across Europe.

What the Spending Package Includes

Documents tied to the Budget Committee’s agenda show lawmakers are reviewing a broad slate of defense purchases that are expected to pass. According to German media reports, the package includes roughly €22 billion allocated for personal protective equipment, uniforms, and operational gear for military personnel.

An additional €10 billion is earmarked for upgrading infantry fighting vehicles, strengthening air defense systems, and expanding missile capabilities. The remaining funds are expected to cover logistics, communications equipment, and modernization programs designed to improve readiness across Germany’s armed forces.

While the overall defense budget had already been agreed earlier, this vote is critical because it converts previously allocated funds into binding procurement contracts.

Defense Stocks React Ahead of the Vote

Investors moved quickly in anticipation of approval. By late morning trading in Europe, the Stoxx Europe Aerospace and Defense index was up about 1.2 percent, recovering from losses in the previous session.

German defense firms led the gains. Renk shares rose close to 3 percent, Hensoldt advanced more than 2 percent, and Rheinmetall added nearly 2 percent. The rebound followed a pullback a day earlier, when hopes of progress toward a peace agreement in Ukraine briefly dampened sentiment across the sector.

A Sector Already on a Powerful Run

The latest rally adds to an extraordinary year for European defense stocks. Since the beginning of the year, the Stoxx Europe Aerospace and Defense index has climbed more than 50 percent, with several companies more than doubling in market value.

Rheinmetall has been one of the standout performers, with its shares up roughly 150 percent year to date. The surge reflects sustained commitments from European governments and NATO members to raise defense spending toward or above the alliance’s 2 percent of GDP target.

Order backlogs across the sector have reached record levels, providing rare long-term earnings visibility in an otherwise uncertain macroeconomic environment.

Why Germany Matters So Much to Investors

Germany’s role is especially significant given the scale of its economy and its historical reluctance to spend aggressively on defense. Legislative reforms in recent years removed long-standing fiscal constraints, opening the door to higher military outlays.

Market participants view the current package as a turning point rather than a one-off event. Analysts note that Germany’s procurement decisions tend to ripple through the entire European defense supply chain, benefiting not only prime contractors but also a wide network of component suppliers and technology firms.

Revenue Visibility Improves for Defense Firms

Industry specialists emphasize that parliamentary approval is more than a symbolic gesture. Once contracts are formally signed off, companies can begin recognizing revenue, scaling production, and investing with greater confidence.

For investors, this step reduces uncertainty around timelines and cash flows. It also reinforces expectations that elevated defense spending will persist for years, not months, as European governments prioritize security, ammunition stockpiles, and advanced weapons systems.

Is the Rally Fully Priced In?

Despite the sector’s strong performance, some strategists argue that not all of the upside is reflected in current valuations. The pace at which Germany is moving from policy announcements to contract approvals has surprised markets accustomed to slow-moving bureaucratic processes.

The rapid acceleration suggests that earnings forecasts may still need upward revisions, particularly for companies with direct exposure to armored vehicles, ammunition, and air defense systems.

Europe’s Push to Become a Defense Powerhouse

Beyond Germany, the broader trend points toward Europe strengthening its position as a global defense manufacturing hub. Companies are increasingly specializing in niche capabilities, from advanced sensors to heavy armor, as governments seek to reduce reliance on non-European suppliers.

For the sector, Germany’s expected approval represents both a near-term catalyst and a long-term endorsement of a new defense spending era. For markets, it reinforces why defense has become one of Europe’s most closely watched and fastest-growing investment themes.