Can the Germans fight?

The key market implication is not a near-term budget bump for defense primes, but a multi-year normalization of European threat premia. If German political culture has shifted enough to sustain higher military spending, the first-order winner is domestic European defense capacity, but the second-order winner is anyone selling the enabling layer: ammo, electronic warfare, communications, air defense, and logistics rather than only exquisite platforms. That should support a broader industrial base trade, with spillovers into energy resilience, transport hardening, and cyber-related procurement.

The bigger mismatch is fiscal. A credible rearmament path in Germany likely collides with already fragile public finances and slow-growth demographics, which means defense spending becomes a relative winner versus civilian capex and welfare-linked outlays. Over 6-18 months, that tends to steepen the political debate around debt limits and raise the probability of one-off funds, off-budget vehicles, or creative procurement structures, all of which favor incumbents with existing EU/NATO qualification and hurt smaller vendors without scale.

The contrarian view is that sentiment may be running ahead of actual spend. European defense orders can take years to convert into revenue, and the bottleneck is often permitting, supply chains, and training capacity—not headline budgets. If the war in Ukraine de-escalates or European growth weakens further, governments may slow-walk execution, making the trade more about backlog optionality than immediate earnings acceleration.

On timing, the trade is better expressed on a 6-24 month horizon with pullback entries, not as a tactical 1-2 week event move. The highest asymmetry is in suppliers with underappreciated leverage to a German-led rearmament cycle and low current market expectations, while direct beneficiaries with already rich multiples are more vulnerable to disappointment if procurement slips. The main risk to the thesis is political reversion: any budget compromise or peace dividend narrative can compress the entire basket quickly.