European defense stocks weakened on Tuesday after U.S. President Donald Trump announced plans to push for a peace conference between Ukraine’s Volodymyr Zelensky and Russia’s Vladimir Putin. The news marked the potential for the first direct meeting between the two leaders since 2019. In response, investors moved out of defense equities, sending Italy’s Leonardo down nearly 8% in midday trading, while Sweden’s Saab dropped more than 7%, Germany’s Renk and Hensoldt fell, and Britain’s Babcock lost more than 5%. Other major firms including Rheinmetall, Thales, Dassault Aviation, BAE Systems, Kongsberg Gruppen, and Spain’s Indra also traded lower.

The declines followed a series of diplomatic maneuvers during Zelensky’s visit to Washington, where Trump pressed for peace talks and European leaders debated security guarantees for Ukraine. Despite Tuesday’s sell-off, European defense shares have more than doubled in value since the start of 2025, driven by the war in Ukraine, U.S. calls for greater European defense contributions, and NATO’s June decision to boost military spending to 5% of GDP.

In March, the European Commission launched its “ReArm Europe” initiative, mobilizing €800 billion ($933 billion) to bolster military capabilities. Analysts at J.P. Morgan said that regardless of any peace agreement, European defense spending is set to rise further as governments commit to long-term military strengthening. HSBC analysts added that Europe’s financial and security commitments to Ukraine could expand depending on the outcome of potential talks between Kyiv and Moscow.