By Doug Busch
European defense stocks are moving into the spotlight as geopolitics and fiscal priorities realign on both sides of the Atlantic. With President Donald Trump signaling a significant expansion of U.S. military spending, floating figures as large as $1.5 trillion, the message to Europe is clear: Strategic autonomy is no longer an option. For European governments, stepping up defense investment isn't just a security imperative but an economic opportunity, promising long-term industrial growth, job creation, and technological leadership. This push to rearm should be a powerful catalyst for its defense sector and broader economy alike.
The Select STOXX Europe Aerospace & Defense ETF has roughly doubled in price since launch in October 2024. Momentum has only strengthened in recent weeks as the EUAD ETF is on track to post a six-week winning streak, having gained 9% for the week so far at the time of this writing. Yesterday marked its second-largest daily volume since inception, signaling possible strong institutional participation. Price action meanwhile continues to show solid follow-through after a double-bottom breakout above the $44.66 pivot on Monday.
Compared with the U.S.-focused iShares Aerospace & Defense ETF whose holdings include GE Aerospace and Boeing Co., EUAD has outperformed decisively. Across multiple time frames, European defense equities are firmly in the lead. Over the past year, EUAD is up roughly 90% compared with a 55% gain for the ITA ETF, its U.S. counterpart. Year to date, the gap has persisted, with EUAD up about 12% versus a 6% advance for ITA. Let's look at three names set to take advantage of this theme.
Rheinmetall AG, the German defense contractor, has delivered a remarkable one-year return of 185%. After a strong first half in 2025, the stock entered a period of consolidation, a trend visible on the ratio chart versus the EUAD benchmark. Historically, long digesting phases tend to resolve in the direction of the prior move, suggesting Rheinmetall could break significantly higher in the near term.
The daily chart shows sideways action since May, trading in a range between roughly 1500 euros and EUR2000. Momentum has picked up recently, with both the 21-day exponential and 50-day simple moving averages tilting upward. On April 7, the stock filled a gap near the very round EUR1000 level from Feb. 28. Shortly after, a bull flag formed near EUR2000 but broke to the downside, triggering a roughly 600 point drawdown that created a double-bottom pattern. The stock broke above the EUR1804.60 pivot on Wednesday, though yesterday's doji candle suggests some short term fatigue. Look for an entry on a pullback near EUR1800, with a measured move toward EUR2400 in the second half of the year, representing a 33% advance from current levels. The bullish case remains intact above EUR1675.
Rheinmetall AG was trading around EUR1900 on Friday.
Leonardo SpA, the Italian defense and aerospace group, has posted a solid one-year return of 114%. After a difficult June, the stock outperformed the EUAD benchmark decisively, a shift that is evident on the ratio chart.
The daily chart shows the stock breaking above a bullish ascending triangle on Wednesday, though yesterday's spinning-top candle points to the possibility of a near-term pause. The formation began taking shape in early August after shares moved above a bearish head and shoulders pattern. The 21-day exponential moving average is now above the 50-day simple moving average, a configuration that has historically been constructive for the stock. A similar setup emerged at the start of 2025 and held through the first half of the year. A pullback toward the EUR56 area offers an attractive entry point. We could see a move toward EUR71 by mid 2026, a gain of 25% from current prices. The broader bullish case remains intact above EUR52.
Leonardo SpA was trading around EUR58.50 Friday.
Rolls-Royce Holdings PLC, the British aerospace and defense group, is yet another European name up more than 100% year to date. The shares have demonstrated notable relative strength versus peers. Expect that relationship to continue, as trends once in place are more likely to remain that way rather than reverse.
On the daily chart, the shares remain well above the upward-sloping 50-day and 200-day simple moving averages, as well as the 21-day exponential moving average. The stock found support on two occasions near the very round 1000 pence level, on Aug. 20 and Nov. 25, filling a gap from July 30 and reinforcing that area as a likely floor heading into 2026. Shares moved above a double bottom pivot at 1192p on Jan. 2, though a doji candle on Jan. 6 suggests some near term hesitation and the potential for a more attractive entry closer to 1250p. The broader uptrend remains intact above 1125p, with scope for further gains later in the year.
Rolls-Royce Holdings PLC was trading around 1300p Friday.
Whether driven by geopolitics or fiscal necessity, Europe's renewed defense push is likely to remain a defining investment theme well beyond 2026.
Doug Busch is the senior technical analyst at Barron's Investor Circle . His technical view is added to stock picks, including those published exclusively for Investor Circle readers. A glossary of technical terms is updated regularly with new entries.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 09, 2026 11:57 ET (16:57 GMT)
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