Defense Stocks Tumble as Trump's Ukraine Peace Plan Sparks Uncertainty
European arms makers lead losses as investors weigh the prospect of reduced military spending, with US contractors like Lockheed Martin and RTX also under pressure.
A detailed 28-point peace plan proposed by President Donald Trump to end the war in Ukraine sent a chill through the aerospace and defense sector this week, with investors rapidly repricing the risk of a potential slowdown in military spending and aid packages that have buoyed the industry for nearly four years.
European defense stocks bore the brunt of the sell-off. The STOXX Europe Total Market Aerospace & Defense index plunged, marking its most significant one-day fall in over a month. Shares of Germany's Rheinmetall AG and Renk Group AG, both critical suppliers in the effort to arm Ukraine, fell sharply. Other major European contractors, including the UK's BAE Systems and Italy's Leonardo, also saw their valuations decline as markets digested the proposal's implications.
The cautious sentiment extended across the Atlantic, albeit with less intensity. Major U.S. defense contractors, who have been primary beneficiaries of contracts to replenish U.S. stockpiles and supply Kyiv, faced downward pressure. Shares of Lockheed Martin (NYSE: LMT), maker of the HIMARS rocket system, fell approximately 1.6% in Friday trading to close around $460.78. RTX Corp (NYSE: RTX), which produces the Patriot air defense systems, saw its stock dip about 1.4% to $169.68.
The market reaction stems from the specifics of the proposed plan, which reportedly calls for significant concessions from Ukraine in exchange for an end to hostilities. According to multiple media reports citing the plan's details, the terms include Ukraine ceding territory, agreeing to limits on its military, and abandoning its long-term goal of joining the NATO alliance. In return, the plan suggests a path for lifting sanctions on Russia and potentially using frozen Russian assets to aid in Ukraine's reconstruction.
For defense investors, the prospect of a negotiated settlement introduces significant uncertainty. The sustained conflict has driven a surge in orders for everything from artillery shells to advanced air defense platforms, creating a multi-year backlog for many contractors. A potential de-escalation or freezing of the conflict could dramatically alter revenue forecasts that were built on the assumption of a prolonged period of heightened geopolitical tension.
While the peace proposal faces formidable political hurdles and skepticism from European allies and within the U.S. government, its existence alone was enough to force a reassessment of the sector's risk profile. Analysts note that any credible move toward peace could temper the urgency for continued large-scale military aid packages, which have been a key driver of industry growth.
Ukrainian President Volodymyr Zelenskyy has acknowledged receiving the proposal, indicating a difficult diplomatic road ahead. For now, investors in the defense sector are left to grapple with a new variable. The very peace dividend that would be welcomed by the world could become a significant headwind for an industry that had been preparing for a long winter of conflict.