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Top Market Takeaways

Quick shot: Germany seeks more robust defense spending

PublishedMar 6, 2025

J.P. Morgan Wealth Management

    Top Market Takeaways Quick Shot

      Oktoberfest is over six months away, but some investors are breaking out their stein glasses in a toast to defense-oriented stocks after Germany’s Chancellor in-waiting Friedrich Merz announced plans for an unprecedented fiscal package, including:

       

      • A plan to exempt defense spending exceeding 1% of gross domestic product (GDP) from its debt brake limits.               
      • The creation of a 500 billion euro off-budget infrastructure fund over the next ten years designed to address long-standing domestic infrastructure needs.

       

      On the heels of the U.S. announcing it will temporarily suspend military aid to Ukraine, adjusting these constraints could be essential for enabling increased defense spending in Germany (and the broader Euro Area). The European Commission has unveiled its “ReArm” Europe package that may free up close to 800 billion euros in funding for defense and security across the bloc. As part of the proposal, countries in the bloc could have access to loans of up to 150 billion euros for defense investment.


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      If passed, the fiscal package could boost Germany’s and Europe’s economic growth. Following this news, European defense companies have outperformed broader European equities, which aligns with our thoughts in our 2025 Outlook that global security spending has room to grow, as governments will likely deliver higher levels of capital investment into their national security.

       

      With U.S. equities seeing some recent turbulence and the S&P 500 essentially flat year-to-date, the recent developments in Europe highlight how a globally diversified mix of equities could help portfolios navigate an ever-changing economic landscape.


      European defense stocks are having an impressive start to the year.


      Sources: Bloomberg Finance, LP. Data as of March 5, 2025. Past performance is not indicative of future returns. An individual cannot invest directly in an index.
      The graph titled 'European defense stocks are having an impressive start to the year' illustrates the year-to-date returns of two indices, indexed where January 2, 2025, equals 100.



      All market and economic data as of 03/05/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.


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      Global Investment Strategy Team

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      Disclosures

      Our Top Market Takeaways for March 6th, 2025.

       

      The information presented is not intended to be making value judgments on the preferred outcome of any government decision or political election.

       

      Index definitions:

       

      Bloomberg 10-year Municipal Bond Index (BCM10): An unmanaged index that includes investment grade tax-exempt bonds with maturities between 8 and 12 years.

       

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