European defense stocks were a banner trade in 2025, and that trend was expected to continue into 2026. But markets laugh while we make grand plans, and the industry has lagged despite growing backlogs. The Stoxx Europe Aerospace and Defense Index was down more than 1% year-to-date (YTD) despite a nearly 5% advance by the broader Stoxx 600 index.
An alarming earnings report from German giant Rheinmetall AG (OTCMKTS: RNMBY) added teeth to the sell-off, but it is not a verdict on demand. And some European defense contractors have been unfairly dragged down in the process.
