Chart of the Week: Brothers In Arms

Steve Jobs suffered from koumpounophobia – the fear of buttons on clothes. His aversion to buttons also stretched to those on devices, which he saw as clunky, unnecessary and a hindrance to intuitive design. That fear drove innovation, leading to the sleek, button-free interfaces that define modern smartphones. Fear, when harnessed correctly, can be a catalyst for transformation.

This week, fear has been driving change in a very different arena – European defence policy. Donald Trump has been pushing politicians’ buttons across the continent, forcing them to rethink their security commitments. With the US stepping back from its traditional role as Europe’s security guarantor, leaders have been left with a stark choice: bolster their own defences or risk being left vulnerable.

Trump’s shockwaves: NATO members react

At the Munich Security Conference, US Vice President JD Vance called on European nations to step up, while the US focuses on other areas of the world. Meanwhile, Defence Secretary Pete Hegseth told NATO’s European members they must take primary responsibility for the defence of their region. In his characteristically direct style, Trump has made it clear that European countries need to significantly increase their defence spending. And the response has been swift.

France: President Emmanuel Macron has called for greater European military autonomy, pushing the European Union to reduce its reliance on the US over the next decade.

UK: British military chiefs have urged Prime Minister Keir Starmer to accelerate plans to increase defence spending.

Germany and Italy: Both countries are ramping up procurement from domestic defence contractors.

The market’s response to war in Europe: defence stocks on the rise

Markets react to fear, and in this case, they’ve responded with a rally in European defence stocks. The uncertainty surrounding NATO’s future and US foreign policy has sent investors flocking to the continent’s largest defence contractors. Shares in German arms manufacturer Rheinmetall and other European defence companies have spiked. This was an acceleration of an upward trajectory that began when Russia launched its full-scale invasion of Ukraine three years ago.

Rheinmetall (Germany): +518% over the past three years

Leonardo (Italy): +314%

Kongsberg Gruppen (Norway): +309%

Shares in the UK’s BAE Systems have risen significantly over the three years and with NATO members reassessing their security strategies, companies like Airbus, Thales and Saab are also seeing increased demand for military hardware and technology.

Key takeaway: Just as Jobs’ fear of buttons changed the tech world, fear of geopolitical instability is reshaping the defence landscape. Markets hate uncertainty, but they love clarity – and Trump’s shift in policy has clearly signposted how the world is changing. Europe is waking up to its security reality, and that means defence budgets are heading in one direction: up.

In an unpredictable world, multi-asset investing can help us navigate the changing political and economic backdrop. While geopolitical events can cause short-term volatility, a diversified approach can provide exposure to long-term trends – whether it’s the rise of artificial intelligence or increased defence spending.

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