Will European defense stocks continue to hit new highs in 2026?

Shares of major European defense companies have surged to record levels amid rising geopolitical tensions—from Venezuela to Greenland—and expectations of sustained military spending. The STOXX Europe Aerospace & Defense Index rose 13% in early January and is up 260%+ since the start of the war in Ukraine, with strong gains in Rheinmetall, BAE Systems, Leonardo, Saab, and Thales. Momentum has also been supported by U.S. peers following statements by Donald Trump signaling a sharp increase in the U.S. defense budget, reinforcing expectations of long-term rearmament across NATO countries.