European defense stocks soar to record highs amid promises to increase military spending.

European stock indices have reached new records after regional leaders promised to boost military spending. Defense stocks rose by $35 billion in market capitalization. Shares of Rheinmetall AG jumped by 14%, while Saab AB increased by 12%.

There has been significant growth in the basket of European defense stocks from Goldman Sachs Group Inc. - up 15% to a record level. Overall, the profit from these stocks amounts to over 60% this year.

"This is undoubtedly the trade of the quarter," said Mabrouk Chetouane, head of global market strategy at Natixis Global Asset Management. He added that further dynamics in the defense and technology sectors will be observed as the rally of European stocks becomes more concentrated.

European countries are expected to significantly increase their military spending. This has already led to a sharp rise in the stocks of companies involved in the defense sector. For example, Rheinmetall's shares have risen by more than 90% since the beginning of the year and increased 11 times since the start of the conflict in Ukraine three years ago.

Global market strategist at JPMorgan Asset Management, Vincent Juvin, noted that even with a peace agreement in Ukraine, military spending will rise significantly in the coming years. He also said that Europe needs to take its future into its own hands and increase military spending.

BAE Systems, the largest European arms manufacturer, hopes to support key submarine and frigate programs through the increased military budget of the United Kingdom and weapon sales to NATO members.

"Our growth potential is significant, and we remain focused on consistently executing our long-term strategy to ensure revenue growth, margin expansion, and stable cash generation," said CEO Charles Woodburn.

JPMorgan Chase & Co. specialists stated that Europe is moving into a rearmament cycle, and the growing negative sentiment in the U.S. regarding subsidizing regional defense will lead to increased production from domestic companies and reduced imports.

"The events of the last two weeks have accelerated this thesis. We believe we are now entering a phase where valuation multiples will increase, and profit increases will follow over Time," wrote one of the analysts.

Overall, investors are hopeful for an increase in military spending in Europe, but there are also those who fear that geopolitical instability may negatively impact the economy and growth.

"Every day brings its share of conflicting news, and this uncertainty is starting to affect the real economy, investment decisions, and consumption," said one of the capital markets strategy leaders.