Bank of America's fund manager survey shows record bullishness, yet bond yields rise relentlessly. European defence stocks, expected to surge after Russia's Ukraine invasion and Germany's €800bn fiscal expansion, are underperforming.

ECB chief economist Philip Lane estimates defence spending's fiscal multiplier at just below one over two years — below the growth-boosting threshold. Spending with high import content yields multipliers of 0.6-1, while pure government consumption hits 1.2-1.4. Over 51 per cent of supplier links for top euro area defence firms lie outside the EU, leaking stimulus abroad.

Markets reflect this reality. The Wisdom Tree Europe Defence ETF has been rocky. KNDS delayed its IPO, citing unfavourable conditions while seeking a €12bn valuation for a tank-focused model as procurement shifts to drones and AI. Rheinmetall, the sector darling, is down 22 per cent year-to-date.

Europe's rearmament is not a defensive trade. The macro boost is moderate, benefits depend on spending composition and location, and stocks remain exposed to politics, procurement delays and evolving warfare assumptions.