Global Markets React as Defense Stocks Rally and U.S. Remains Closed for Presidents Day
European defense stocks surged on Monday, fueled by expectations of increased military spending from NATO allies. Meanwhile, global markets remained subdued with the U.S. stock market closed in observance of Presidents Day.
Investors poured into defense companies, with London-listed BAE Systems, France’s Thales, and Germany’s Rheinmetall leading the gains—each climbing over 7%. The rally followed renewed commitments from NATO members to strengthen defense budgets in response to the ongoing Russia-Ukraine conflict and the need for greater deterrence measures.
Defense Stocks Lead the European Market Rally
The Stoxx Europe 600 index, a key benchmark for European stocks, rose 0.5% by midafternoon in London, positioning itself for another record close. The index has already posted seven record highs in 2025, reflecting the strong performance of European equities.
Investors are betting on sustained government spending on military infrastructure and defense technology, particularly as geopolitical tensions remain heightened. This bullish sentiment toward defense stocks is further supported by European leaders’ increasing focus on long-term security commitments.
U.S. Index Futures Inch Higher as Earnings Season Continues
With the U.S. markets closed for Presidents Day, futures on major American indices showed modest gains, setting the stage for a busy earnings week.
Among the companies set to report this week are retail giant Walmart and Berkshire Hathaway, the conglomerate led by Warren Buffett. Investors will be watching closely for insights into consumer spending trends and corporate profitability amid a complex economic landscape.
So far, 383 S&P 500 companies have reported earnings, with results beating expectations by an average of 6.3%, according to data from LSEG. This outperformance is well above the long-term average of 4.2%, signaling strong corporate resilience despite ongoing macroeconomic challenges.
Japan’s Economic Growth Fuels Interest Rate Expectations
In Japan, benchmark borrowing costs hit their highest level since 2010, following a stronger-than-expected GDP report. The economy grew at an annualized rate of 2.8% in the final quarter of 2024, surpassing analysts’ forecasts and raising speculation about potential interest rate hikes from the Bank of Japan (BOJ).
As a result, 10-year government bond yields climbed to 1.393%, reflecting increased expectations for tighter monetary policy. Meanwhile, Japan’s Nikkei 225 stock index managed a slight 0.1% gain, with investors balancing growth optimism against rising borrowing costs.
China’s Tech Stocks See Mixed Performance Amid Pro-Business Shift
China’s stock market saw mixed trading on Monday, despite a notable meeting between President Xi Jinping and top tech leaders, including Alibaba co-founder Jack Ma. This high-profile engagement is seen as a positive signal that China is shifting toward a more business-friendly environment, following years of regulatory crackdowns on the tech sector.
“The meeting shows that Beijing is turning more pro-business as the trade war 2.0 looms,” wrote Larry Hu, Macquarie’s chief China economist, in a note to investors.
Chinese tech stocks have recently gained momentum, helped by optimism surrounding the rise of artificial intelligence (AI) startups such as DeepSeek.
Alibaba’s Hong Kong-listed shares dipped slightly on Monday, following a 47% year-to-date gain in New York trading. Meanwhile, Tencent’s stock advanced, as the company explores integrating DeepSeek AI technology into its Weixin messaging app.
Despite these tech sector movements, overall market performance in Hong Kong and mainland China remained muted:
- Hong Kong’s Hang Seng Index ended the day flat.
- The Shanghai Composite Index posted a modest 0.3% gain.
Key Takeaways for Investors
📌 Defense Stocks Lead European Gains: NATO’s commitment to higher military spending is boosting stocks in the defense sector, with major players like BAE Systems and Thales seeing strong rallies.
📌 U.S. Markets Set for Key Earnings Reports: With Walmart and Berkshire Hathaway set to report this week, investors are eager to see how consumer spending and corporate earnings trends unfold.
📌 Japan’s Economy Surprises to the Upside: Strong GDP growth is fueling speculation about rate hikes, pushing bond yields to a 14-year high.
📌 China’s Tech Industry Sees a Policy Shift: Beijing’s more business-friendly stance is driving renewed interest in Chinese tech stocks, particularly in the AI sector.
Looking Ahead: What’s Next for Global Markets?
As geopolitical events and economic policy decisions continue to unfold, investors should remain focused on key market drivers, including:
✔️ Defense spending trends and their impact on European equities.
✔️ Earnings reports from U.S. blue-chip companies, which could influence broader market sentiment.
✔️ Japan’s monetary policy direction and its impact on global bond markets.
✔️ China’s economic recovery and regulatory environment, particularly in the technology sector.
With multiple macroeconomic crosscurrents at play, market volatility is likely to remain elevated. Investors will be closely monitoring central bank decisions, earnings results, and geopolitical developments to navigate the evolving financial landscape.
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