STOXX 600

Introduction: Ankara Could Change Everything

Tuesday. European defense stocks are frozen in anticipation. Investors are looking at the map and focusing on Ankara — the Turkish capital, where this week’s NATO summit will take place. The two-day event could become the very catalyst Europe’s defense sector has been waiting for.

Goldman Sachs’ basket of European defense stocks has already recovered 17% from its June low, reaching its highest level in more than a month. But this may only be the beginning. If the summit meets expectations, we could see a real rally. If not, the rebound may prove temporary.

What are investors expecting? First of all, clear signals about the future funding of national armies. Donald Trump, who will attend the summit, is likely to increase pressure on European allies, demanding that they raise defense spending to 5% of GDP. This demand, which once seemed unrealistic, may now become reality.

The escalation of the conflict between Russia and Ukraine adds urgency to the issue. The shortage of air defense systems in Kyiv’s arsenal is becoming increasingly obvious, and Ukrainian leader Volodymyr Zelensky is likely to use the summit to call on Western allies for additional weapons supplies.

Morgan Stanley analysts have already called the summit a “key catalyst for European defense.” They expect stronger EU commitments and a repeat of U.S. calls, which would strengthen market confidence in a multi-year cycle and provide an attractive entry point.

Defense stocks have lagged the market this year, gaining only 3.4% amid doubts over how much of the promised spending will actually materialize. The Stoxx 600 index, meanwhile, has risen nearly 10%. But after the summit, the situation could change.

Let’s take a closer look at what is really happening in Europe’s defense sector, what to expect from the NATO summit, and which...

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A Quarterly Report That Blew Past Expectations

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