Shares of the Select STOXX Europe Aerospace & Defense ETF (EUAD) jumped 3.1% in pre-market to $41.98, clawing back much of Friday's 4.3% drop, as the U.S.-Israeli war with Iran — now in its fourth week — intensified over the weekend with fresh strikes on energy infrastructure across the Persian Gulf.
• A Full-Scale War Is Rewriting the Defense Budget Math. U.S.-Israeli strikes on Iran beginning February 28 triggered a full-scale war that quickly escalated across the Middle East.
The Pentagon has struck more than 7,000 targets across Iran , and The Washington Post reported the Pentagon is asking for an additional $200 billion for the war. For European defense firms tracked by EUAD — Rheinmetall, BAE Systems, Safran, Leonardo — this spending surge is additive. European core defense spending has doubled since 2019, and under NATO's new 3.5% benchmark could reach roughly €800 billion by 2030. Every week this conflict continues, the political case for further European rearmament hardens.
• Energy Chaos Strengthens Europe's Case for Self-Reliance. The near-total halt of traffic through the Strait of Hormuz — through which about a fifth of the world's oil and gas passes — has created catastrophic disruption; oil prices have risen around 45% since the war began.
Goldman Sachs warns oil may cost more than $100/barrel through 2027. The energy shock reinforces Europe's drive to build its own integrated air and missile defense networks — precisely the systems EUAD's top holdings manufacture.
• The Rally Is Real, but the Valuation Isn't Cheap. The STOXX Europe Aerospace & Defense Index gained more than 65% in 2025.
The European defense sector's average forward price-to-earnings ratio — a measure of how much investors pay per dollar of expected profit — sits at roughly 28 , well above historical norms. Defense contracts are large and long-term, but depend on political decisions, budgetary approvals, and industrial capacity; execution risks and cost overruns remain part of the landscape.
• Watch the "Winding Down" Signal. On Friday, Trump posted that the U.S. is considering "winding down" military efforts in the Middle East. Any ceasefire or de-escalation could reverse EUAD's war premium overnight — as Friday's 4.3% sell-off demonstrated. But the Iranian regime perceives an existential conflict and does not appear interested in an immediate off-ramp. Investors buying this bounce are betting the crisis outlasts the tweet.