President Donald Trump’s “America First” policies, intended to benefit the U.S., are paradoxically enhancing stock markets overseas. While the White House focuses on domestic concerns, Trump’s initiatives have led European nations to boost their military spending, revitalizing defense stocks and pushing international markets higher. European economies have seen a surge.
The STOXX Europe 600 index, which encompasses hundreds of businesses across 17 countries, has risen by 7.7% this year. Germany’s DAX has surged over 15%, France’s CAC 40 around 9%, and the UK’s FTSE 100 has increased by 5.6%. In contrast, U.S. indices have faltered; the S&P 500 has dropped over 4.1% and the Nasdaq has decreased by more than 8%.
A significant factor behind these movements is NATO allies’ renewed focus on defense spending. Trump has consistently urged coalition allies to bolster their defense budgets to 5% of GDP, surpassing NATO’s current 2% minimum. U.K. Prime Minister Keir Starmer announced plans for military expenditure to hit 2.7% of GDP by 2027, ultimately increasing to 3%.
Britain has introduced incentives for domestic defense firms to boost exports. Germany has also committed to increased defense spending, with likely incoming Chancellor Friedrich Merz agreeing to loosen fiscal rules to unlock up to 1 trillion euro ($1.1 trillion) for national defense. French President Emmanuel Macron has similarly declared plans to elevate defense spending from 2% to 3.5% of GDP, amounting to a 30 billion euro ($32.6 billion) hike.
These aggressive policy changes have significantly impacted defense stocks.
European defense spending boosts markets
German tank manufacturer Rheinmetall’s shares have more than doubled this year.
Shares of French aerospace firm Thales have surged over 70%, U.K. defense giant BAE Systems has grown nearly 40%, and French aircraft maker Dassault is up 15%. Analysts have been surprised by the extent of these shifts. HSBC’s global equity strategist Alastair Pinder noted that Trump’s wavering support for NATO and Ukraine has triggered fundamental changes in European defense fiscal policies.
This has prompted major banks like HSBC to revise their outlook on U.S. markets to “neutral.”
Despite Trump’s campaign promises to address inflation and make America more affordable, his administration acknowledges the economic challenges ahead. Treasury Secretary Scott Bessent emphasized focusing on long-term economic health over short-term stock market volatility. While European economies face uncertainties, their recent growth on trading floors has been notable.
However, the U.K. grapples with stagnant growth, and German economic output has declined over two consecutive years. The French central bank anticipates modest GDP growth of 0.7% in 2025. JPMorgan Asset Management analysts caution that the sustainability of the European rally is uncertain, noting that economic activity surveys remain flat, and potential U.S. tariffs pose risks to growth due to the EU’s reliance on exports.
Meanwhile, international capital is eyeing diversification outside the somewhat volatile American market. Citi’s head of macro strategy, Dirk Willer, highlighted a shift as U.S. exceptionalism takes a pause. Chinese stocks have also turned bullish, with domestic factors such as economic stimulus and lower borrowing costs fueling investor confidence.
These developments illustrate how Trump’s policies, aimed primarily at bolstering the U.S. economy, have inadvertently jumpstarted global markets, even as the U.S. markets face turbulence.
Photo by; iStrfry Marcus on Unsplash
