Europe's defense and aerospace stocks saw significant declines due to concerns over potential disruptions in supply chains caused by US tariffs. Investors also took profits on some of the top-performing stocks in the region in 2025.

Rheinmetall AG, a German tank and ammunition manufacturer, experienced a record one-day drop of up to 27%, which later reduced to less than 5% after the company's CEO purchased shares at a discount. Airbus SE and Rolls-Royce Holdings Plc also witnessed declines of as much as 14% before recovering slightly.

The sector was rattled by reports that Howmet Aerospace Inc., a US parts supplier for Airbus and Boeing Co., had declared force majeure due to President Donald Trump's tariff measures. Analysts warned that even a minor disruption in the supply chain could potentially halt aircraft deliveries.

Shares in Thales SA (France), Hensoldt AG (Germany), and Leonardo SpA (Italy) also fell, as investors sought to reduce exposure to risk assets amid uncertain market conditions. The surge in defense stocks earlier in the year made them particularly vulnerable to such developments.

European defense stocks had been soaring as countries increased security spending amid concerns about US security commitments. However, with President Trump escalating tariff actions, market realities are starting to impact share prices.

While European defense stocks still show strong prospects, investors are becoming more cautious as current valuations may have overly factored in the positive outlook. The sector's future growth remains promising, but recent events have highlighted potential risks that need to be considered.