Defense stocks rally as President Trump, in a major rhetorical shift, says Ukraine can win back territory from Russia

Wall Street and defence markets in Europe and Asia jumped on Wednesday after President Donald Trump — speaking in New York following a meeting with Ukrainian President Volodymyr Zelenskiy at the U.N. General Assembly — unexpectedly said he believed Ukraine could reclaim territory lost to Russia and urged NATO and partners to back Kyiv’s efforts. Investors interpreted the comments as a signal that the risk of a prolonged, high-intensity conflict — and therefore steady demand for air-defence systems, missiles and other battlefield hardware — remained elevated, prompting broad gains across the sector. 

European defence firms led the advance. The pan-European aerospace and defence index climbed about 1.1–1.3% on the session, outperforming the broader STOXX 600, with pockets of more vigorous moves in individual names. Germany’s Rheinmetall rose roughly 1.4% and neared record highs, while smaller suppliers such as Renk and Hensoldt enjoyed double-digit relative strength — gains of roughly 5.2% and 4.7%, respectively — as investors rotated into companies seen as direct beneficiaries of higher procurement budgets and urgent modernisation programmes. Sweden’s Saab also jumped sharply, lifting sentiment across the sector. 

In London, BAE Systems outperformed the benchmark as the City reacted to the U.S. president’s comments and the wider diplomatic theatre around the U.N. session; the U.K. defence contractor rose while the FTSE 100 as a whole slipped on other market pressures. Asian markets echoed the move: baskets of regional defence and aerospace names rose as traders priced in a longer window of military spending and allied procurement. Market strategists said the rally reflected both an immediate knee-jerk reaction to Mr Trump’s remarks and a broader recalibration of the sector’s medium-term revenue prospects. 

U.S. government-contracting heavyweights also benefited from the risk-on in military suppliers, with several major contractors trading higher as the day progressed. Market commentary singled out Lockheed Martin, Raytheon Technologies and Northrop Grumman as representative beneficiaries — companies that stand to gain from sustained demand for interceptors, radars and munitions if allied governments step up assistance to Kyiv or accelerate domestic rearmament plans. Analysts cautioned, however, that much of the move was sentiment-driven and that concrete, multi-year procurement commitments would be needed to underpin a durable rerating. 

Traders and analysts said two dynamics were driving the reaction. The first was rhetorical: a U.S. president publicly signalling confidence in Kyiv’s ability to reclaim territory reduces the near-term probability the market attaches to a quick de-escalation or negotiated freeze, and therefore raises the likelihood of continued weapons orders and replenishment purchases. The second was practical: the kinds of systems in highest demand — air-defence batteries, precision munitions, counter-drone systems and logistics support — are products that map closely onto the manufacturers that populate defence indices, making them natural recipients of any “rearmament” reflation trade. 

Despite the market enthusiasm, officials and diplomats stressed the distinction between rhetoric and policy. Mr. Trump’s statements were widely read as a major rhetorical reversal from earlier suggestions that Ukraine might have to cede territory for peace, but no new U.S. financial package or formal change in policy toward Kyiv was announced alongside the remarks. Western ministers and allied officials welcomed the tone change — Ukrainian President Volodymyr Zelenskiy publicly praised the statement — yet warned that practical support would still need to be negotiated and implemented through formal NATO and bilateral channels. That gap between words and binding commitments left some investors cautious about drawing long-term conclusions from a single day’s moves. 

The geopolitical sensitivity of the comments was underscored by immediate pushback from Moscow, which dismissed the assessment and warned against what it called dangerous escalation rhetoric. Kremlin officials argued that Russian economic resilience and military capability remained intact and characterised Western optimism about Ukrainian offensives as wishful thinking. Those competing narratives have a direct effect on markets: the more credible Kyiv’s prospects look, the greater the chance Western governments will accelerate arms flows; conversely, robust Russian resistance or diplomatic breakthroughs could sap demand and reverse the sector’s advance. 

Investors also factored in other, non-political drivers as they reweighted portfolios. The broader market on Wednesday was influenced by Federal Reserve commentary that left some rate-cut hopes in doubt, which capped equity gains in cyclical sectors; within that environment defence stocks’ relative outperformance stood out precisely because the trade was driven by geopolitics rather than macro beta. Portfolio managers told reporters they were positioning for a bifurcated market where defence and commodity-linked names could outperform even if broader risk appetite cooled — a view that made shares of specialist mid-cap defence suppliers particularly attractive for nimble traders. 

Market veterans warned against reading too much into a single-day move. “You can have headline-driven spikes when geopolitics changes tone, but durable gains require multi-year, contracted revenue,” said one market strategist, noting that procurement timetables, budget cycles and congressional approvals — particularly in the United States — can delay the translation of political support into payable orders for months or years. The strategist pointed to past episodes where bouts of defence enthusiasm faded when follow-through spending failed to materialise. 

Still, the longer-run structural backdrop that has underpinned defence equities since 2022 remains intact: NATO members have raised defence budgets significantly since Russia’s full-scale invasion, supply chains for high-end microelectronics and guided weapons remain constrained, and countries from South Korea to several EU members are expanding indigenous production. Those trends mean that, even if Mr. Trump’s remarks do not immediately trigger procurements, the political recalibration they represent makes sustained higher spending a more plausible baseline scenario in some capitals — a fact that investors say justifies at least a re-rating of some parts of the sector. 

For defence companies, the near-term challenge will be converting sentiment into signed letters of intent and firm orders. Suppliers that can demonstrate near-term production scalability, secure supply chains for critical components and the ability to deliver interoperable systems that NATO customers want will likely be the first to benefit. Smaller specialised firms that sell counter-drone and electronic-warfare systems are already enjoying heightened interest from procurement officers and venture investors, a trend that risk-tolerant equity buyers applauded on Wednesday.

What investors will watch next are concrete signs of policy and budgetary follow-through: announcements of expedited deliveries, fresh support packages from Washington or European capitals, and clearer commitments from NATO’s political councils. Absent that, trading desks said, the rally could be vulnerable to profit-taking or to re-pricing if diplomatic channels signal restraint. For now, however, the market message was unequivocal: a U.S. president’s public embrace of Kyiv’s military prospects is perceived as bullish for defence suppliers — at least until the next shift in the fast-moving geopolitical news cycle. 

— Reporting by Nick. Sources: Reuters; Associated Press; Bloomberg; The Guardian; ABC News; market data and analyst commentary.