European defense stocks fall as U.S. midterm election results weaken expectations for military spending

European defense stocks declined as the Democratic Party achieved a major victory in the US midterm elections, dampening market expectations for further US increases in military spending. The European defense stock index compiled by Goldman Sachs fell as much as 4.1% on Wednesday, marking its largest drop in more than four months. Shares of UK defense company BAE Systems slumped up to 5.9%, with nearly half of its revenue coming from the US market. MWB Research analyst Jens-Peter Rieck commented via email that the election results also eliminated one of the drivers that had pushed European defense stocks higher for 2025—namely, market concerns over a “US withdrawal from European defense affairs.” However, Mediobanca analyst Alessandro Pozzi believes that, given polls and prediction markets have been pointing to a comprehensive Democratic win for weeks, Europe's reaction to the election result was somewhat surprising.