Defense Stocks Could Get a Boost From Europe's Rearmament

) commanding the global arms market. But now, Europe—specifically its arms manufacturers—may be the next big opportunity for savvy investors.

I imagine this talk must be music to the ears of European arms manufacturers, and for investors like you, it could signal a potentially interesting chance to start participating.Draghi’s report should be a wake-up call to Europe’s leaders. The region may be the second-largest military spender in the world, but that doesn't tell the full story. For decades, European nations have underfunded their defense sectors, relying heavily on the U.S. for both technology and equipment.

Indeed, the Russia-Ukraine conflict has forced European governments to rearm rapidly, and Draghi’s report underscores the urgency of the situation. Europe can no longer afford to sit on the sidelines of its own defense. Leaders are beginning to understand that their reliance on the U.S. must end if they are to build a robust defense strategy capable of handling threats from adversaries like Russia, which announced this week that it’s increasing the size of its army by 180,000 troops to 1.

This surge in investment contrasts with the broader decline in venture capital funding across most sectors this year. Defense is clearly becoming a priority for investors, and this trend is only expected to grow as Europe gears up for increased military expenditures.One wildcard in this equation is the upcoming U.S. presidential election. Analysts at Alpine Macro suggest that a Donald Trump victory could lead to reduced global geopolitical risks.

That would be a tall order. The U.S. currently spends 3.7% of its GDP on national defense, down significantly from the 15% to 16% it was spending at the height of the Cold War in the early 1950s.

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