In This Article:
(Bloomberg) -- Europe’s defense and aerospace stocks plunged on fears that US tariffs could upset the industry’s supply chains, and as investors booked profits on some of the region’s best-performing shares of 2025.
Most Read from Bloomberg
-
Boston Mayor Wu Embraces Trump Resistance as Campaign Heats Up
-
This Skinny Mexico City Tower Is Just 14 Feet Wide on One Side
-
The Irish Hot Press Is the Low-Tech Laundry Trick the World Needs
German tank and ammunition maker Rheinmetall AG slid as much as 27%, the steepest one-day drop ever, before paring the decline to less than 5% as the company’s chief executive officer bought up shares at a discount. Planemaker Airbus SE and engine firm Rolls-Royce Holdings Plc both slid as much as 14% before trimming the moves.
The sector was shaken by a Reuters report which said US company Howmet Aerospace Inc. — a supplier of parts for planes built by Airbus and Boeing Co. — declared a force majeure following US President Donald Trump’s sweeping tariffs.
“Howmet has made a chess move,” Jefferies analysts including Sheila Kahyaoglu wrote in a note to clients, “It takes just one nut or bolt to stop the aerospace and defense supply chain.” Aircraft deliveries could even experience a complete stop if engine makers or avionics providers make similar moves, they warned.
Shares in France’s Thales SA, Germany’s Hensoldt AG and Italy’s Leonardo SpA also declined. The defense sector’s big gains this year made it an obvious target for investors seeking to reduce exposure to risk assets. Trump doubled down on his tariff barrage this weekend, dismissing investors’ fears of inflation and recession.
“There’s possibly a little bit more reality creeping into the share prices,” Graeme Bencke, a fund manager at Amati Global Investors Ltd., said in an interview. “The outlook for European defense stocks is still pretty robust, but a lot of that did get priced in very quickly.”
Defense has been the biggest gainer this year as European nations pledged to spend more on security amid worries the US could walk back its security commitments in the continent. A Goldman Sachs Group Inc. basket of pure-play European defense shares is still up nearly 50% on the year.
Goldman’s basket is priced at 26 times earnings expected a year from now, up from a ratio of 18 times at the start of this year. That multiple stood at about eight times before Russia’s invasion of Ukraine in 2022.
“Hope has collided with reality for defense names in Europe,” said Chris Beauchamp, chief market analyst at IG Group. “Increased defense spending has yet to actually materialize, and we are in a firesale situation now for stocks as a whole.”