Update Equities: Structural spending shift?

Throughout the week, global equity markets faced volatility sparked by geopolitical factors and evolving defence budget narratives. Earlier tensions between US President Donald Trump and Ukrainian President Volodymyr Zelensky over a minerals deal, as well as aid and peace discussions unsettled investors and European leaders. It also intensified debates regarding defence budgets and burden-sharing in Europe. Trump's pause on aid to Ukraine heightened pressure on NATO allies.
Consequently, European Commission President Ursula von der Leyen unveiled the intention of a massive European defence spending boost, signalling a bold shift by the EU towards greater self-reliance. The push to rearm Europe framed defence as an urgent priority, which could be favoured by fiscal flexibility and unified investment. These dynamics strongly boosted European defence stocks. In addition, Germany plans to establish a EUR 500 billion fund to modernize its infrastructure, benefiting the building materials subsector. This has been especially supportive for the German equity market as a whole.
Broadly speaking, basic materials, health care, industrials and European financials outperformed. Conversely, energy and European real estate, in particular, but also information technology and US financial stocks, have globally been weak.
In this context, significant performance discrepancies have emerged geographically. We note that in euro terms, the European market largely outperformed, followed by emerging markets. Meanwhile, due also to a weaker US dollar, US equity markets have lagged recently. US indices wavered under Trump’s isolationist approach and the various tariff announcements. Investor concerns have heightened regarding the potential impacts of Trump policies on prices, economic growth and corporate profits.
Since the end of last week, Brown-Forman (beverages and spirits), Moderna (biopharmaceuticals) and Palantir Technologies (software solutions) were among the best performing companies in the US, while Intel (semiconductors), KKR (private equity) and CrowdStrike (cybersecurity), significantly underperformed. In Europe, Thales, Rheinmetall, Leonardo (defence), Kion (industrial machinery) and Hochtief and Heidelberg Materials (building materials) notably outperformed, while Vonovia (real estate), Enel (utilities) and ASM International (semiconductor equipment) declined.