Defense stocks are rising with the news of tragic events — with Germany leading the charge.

What’s the big deal? Yesterday, Germany announced plans to spend over ~$111B (>2% of Germany’s annual GDP) to modernize its armed forces.

• The SPDR S&P Aerospace and Defense ETF (NYSE:XAR) — a basket of US aerospace and defense companies jumped 5% — not as much as Europe’s largest defense stocks.
• Industry experts expect greater spending overall as more troops are deployed to surrounding NATO countries (via FT).

One analyst expects NATO countries to raise military spending by ~11%.

Changing stance: Germany has an arms policy that bans weapon sales to conflict areas — but pressure from allies overturned this.

As a result, other countries can send German weapons to Ukraine — Germany even offering to supply Ukraine with missiles, weapons and vehicles.

US defense stocks were boosted by the Pentagon on Monday — which granted $1.8B to three companies to build out its military satellite:

• The trio: Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and private-company YorkSpace.
• While European defense stocks become more competitive — US defense contractors could benefit, according to JPMorgan analyst Seth Seifman (via Reuters).

But not all analysts are biting. Rob Stallard of Vertical Research Partners doesn’t expect a change in the US’ defense spending.

Out of favor: Defense stocks have been criticized in recent years for ESG issues — with mandates keeping some institutional investors away from weapon stocks — but the crisis could change this.

The defense sector is already up over 11% since the invasion started — which could lead to a “buy the rumor, sell the news” mentality.