Have you ever watched one market light the fuse and the rest of the world suddenly catch fire? That’s exactly what happened overnight.
Wall Street smashed new records on Thursday, the S&P 500 and Dow both closing at all-time highs, and now the positive vibes are rolling straight across the Atlantic. As I sip my first coffee this Friday morning, the futures boards are glowing green: FTSE 100 up around 0.4%, DAX looking at half a percent, CAC not far behind. It’s the kind of spillover that makes you lean forward in your chair.
But here’s the thing: the financial headlines feel almost bizarrely detached from the geopolitical noise coming out of the geopolitical sphere right now. While traders chase momentum, NATO’s chief is openly talking about preparing for a scale of war most of us thought belonged to history books. Strange times.
A Classic Wall Street Hand-Off to Europe
Let’s start with the pure market mechanics, because sometimes the price action really is that simple.
Thursday’s session in the U.S. was textbook rotation into value and cyclical names after the Fed’s latest rate cut gave everyone the green light to buy anything that isn’t mega-cap tech. Materials, industrials, financials, energy, all caught serious bids. When those sectors lead in the U.S., Europe tends to wake up feeling frisky the next day, and today looks no different.
Overnight futures confirm it:
- FTSE 100 futures +0.4%
- DAX futures +0.5%
- CAC 40 futures +0.4%
- Euro Stoxx 50 futures +0.45%
Nothing earth-shattering, but solidly higher and, importantly, broad-based. Banks, miners, defense names, and autos are all indicated to open strong. In my experience, when Europe opens with that kind of uniform green, the tone usually sticks for at least the morning session.
The Euro Flexes Its Muscles
One subplot that caught my eye yesterday was the euro breaking above $1.1730, its highest level since early October. That’s not pocket change when you consider how much of European earnings come from abroad.
A stronger euro normally acts as a headwind for exporters, yet the market is shrugging it off completely today. Why? Because the primary driver right now is U.S. dollar weakness after the Fed pivot, not euro strength in isolation. Traders are treating it as a global reflation story rather than a currency-specific headache. Smart, if you ask me.
Defense Stocks: The Unspoken Elephant in the Room
Now we get to the part that actually keeps me up at night.
While equity futures paint a carefree picture, the rhetoric coming out of NATO this week has been chilling. The Secretary General didn’t mince words: Europe needs to prepare for a conflict on the scale our grandparents knew. That’s not hyperbole; that’s the head of the alliance speaking plainly.
“Russia has brought war back to Europe, and we must be prepared for the scale of war our grandparents or great-grandparents endured.”
NATO Secretary General
Almost on cue, we’re hearing fresh noise about the EU governments trying to finalize a plan to use frozen Russian assets to fund Ukraine, something Moscow’s central bank immediately branded as illegal. Expect headlines on that front by lunchtime.
And then there’s the new U.S. national security strategy document that basically asked, out loud, whether Europe is still a serious geopolitical player. Ouch. Even seasoned observers called it blunt.
Yet here’s where it gets interesting for markets: every time these warnings land, European defense stocks jump. Rheinmetall, BAE Systems, Thales, Leonardo; they’ve been some of the best performers on the continent for two years running. In a twisted way, geopolitical risk has become a reliable earnings driver. Dark, but true.
A Wake-Up Call Europe Might Actually Heed This Time
I’ve watched American presidents lecture Europe about defense spending for decades. It usually falls on deaf ears. But something feels different now.
David Petraeus was on air yesterday basically saying the tough talk from Washington is long overdue. Four U.S. administrations begged Europe to step up, and only now, with the threat literally on the doorstep, are we seeing budgets move. Germany’s pushing past 2% of GDP, Poland is at 4+%, even the Nordics are rearming at speed.
Translation for investors: the European defense sector isn’t a short-term trade anymore. It’s becoming a structural growth story. If you haven’t looked at the space yet, maybe today’s the day.
Asia Already Ran With the Baton
Quick side note: Asia-Pacific markets were mostly higher in their Friday sessions, with Hang Seng, Nikkei, and ASX all posting decent gains. Classic hand-off from Wall Street through Asia and now into Europe. When you see that sequencing play out cleanly, it usually means the positive momentum has legs.
What Could Derail the Party?
Look, I’m not here to rain on anyone’s parade, but markets rarely move in straight lines. A few things I’m watching today:
- Any escalation in Ukraine-related headlines (especially around those frozen assets)
- Bond yields: U.S. 10-year still hovering near 4.3% – if it spikes, risk-off can return fast
- Oil prices: Brent back above $74 on colder weather forecasts and Middle East tension
- Weekend risk: traders hate holding big positions into weekends when geopolitics are this noisy
Having said that, the path of least resistance still feels higher near-term. Momentum is a powerful drug, and right now the market is hooked.
Final Thoughts – Bullish, But Eyes Wide Open
If someone had told me a year ago that European stocks would be hitting new highs while NATO talks about preparing for major war, I would have laughed. Yet here we are.
The honest truth? Markets have an incredible ability to compartmentalize. They can price in reflation and rate cuts in one breath and completely ignore existential risk in the next. Whether that detachment is healthy long-term is a different conversation.
For today, though, the tape looks constructive. European open should be firm, rotation into cyclicals and value should continue, and defense names will probably outperform again. Trade accordingly, stay nimble, and maybe keep a little cash on the side in case the weekend brings surprises.
Either way, it’s going to be a fascinating session. I’ll be watching right alongside you.
Disclosure: The author may hold positions in securities mentioned. This is not investment advice. Do your own research.
