What a Ukraine peace plan could mean for Europe’s defense boom

The bull run on European defense stocks isn’t over, market watchers say — whether or not officials find a way to finally put a stop to the war in Ukraine.

On Tuesday, Axios reported that a secret peace deal was being drawn up by Washington and Moscow, with some outlets reporting a breakthrough could be imminent. Some reports suggested, however, that a deal may force Ukraine to make concessions on land that has been taken by Russia since its full-scale invasion in early 2022, and give up some arms.

Ukrainian President Volodymyr Zelenskyy has previously rejected the notion that his country would hand land over to Russia in order to end the war.

As rumors swirled this week, U.S. Secretary of State Marco Rubio took to social media platform X to shed some light on progress toward a peace plan for Ukraine.

“Ending a complex and deadly war such as the one in Ukraine requires an extensive exchange of serious and realistic ideas,” he said in a post late on Wednesday.

“And achieving a durable peace will require both sides to agree to difficult but necessary concessions. That is why we are and will continue to develop a list of potential ideas for ending this war based on input from both sides of this conflict.”

European defense stocks fell after the reports broke, even as European shares broadly showed signs of recovery from a four-day sell-off. Between Monday and Wednesday, the Stoxx Europe Aerospace and Defense index shed 3.8%, before rebounding on Thursday to add more than 2% by early afternoon trade in London.  

The index has gained more than 50% since the start of the year, as European governments and the NATO military alliance committed to drastically ramp up defense spending. The pledges are widely expected to boost European firms’ bottom lines — with regionally headquartered companies already reporting record order backlogs and huge upswings in income.