Part 1 — The seven sectors in the first half of 2026
In the first half of 2026, defense spending in Europe increasingly became a question of production capacity rather than political will. Over the same period artificial intelligence continued to polarize markets between the sectors that directly benefit (semiconductors) and those bearing the capex costs without yet a visible return. Automotive, finally, went through a period of severe judicial uncertainty — a US Supreme Court ruling reopened the question of the tariffs imposed by the Trump administration — coinciding with a conflict in the Middle East that pushed up the cost of energy.
The geopolitical thread: two events dominated the half-year more than any corporate earnings report. The first is the war between the US/Israel and Iran, which broke out on 28 February 2026, effectively closing the Strait of Hormuz and swinging Brent between $70 and $120 a barrel within a few weeks. The second is the US Supreme Court ruling of 20 February 2026 (Learning Resources, Inc. v. Trump), which declared the use of IEEPA to impose trade tariffs unlawful — with the Tax Foundation estimating more than $160 billion in tariffs illegitimately collected, partly refunded to companies in the following months.
Defense/Aerospace — industrial capacity as the constraint on demand
After a 2025 in which European defense stocks more than doubled, 2026 was a year of consolidation rather than further rally: by the end of May the STOXX Europe Aerospace & Defence index was slightly negative year-to-date, while backlogs and orders kept growing at double-digit rates. Rheinmetall is the most representative example: from its September 2025 highs the stock lost nearly half its value after the cancellation of the German F126 frigate program (24 June, −19% in a single session), before recovering 17% in the weeks ahead of the NATO summit in Ankara. Dassault Aviation, by contrast, surprised on the upside: +8-10% intraday on 23 July on H1 revenue up 46% and momentum from Rafale exports, despite the halt to the FCAS/NGF program shared with Germany. General Dynamics gained 7.75% pre-market on 29 April on quarterly results with a 2:1 book-to-bill ratio. In the United States the trend was more linear: Lockheed Martin and RTX closed the half-year with backlogs of $230 billion and $289 billion respectively, rising 10% and 7% in single sessions in late July. In Asia, the sector recorded the sharpest volatility of the half-year: Korean defense stocks swung from +34% to −13% year-to-date within five months, an example of a geopolitical premium unwinding faster than it built up.
Electronics/Semiconductors — uneven results under the same AI narrative
The artificial intelligence theme continued to dominate the sector, with differences between individual companies sharper than in 2025. Intel had its best day on the stock market since 1987: +23.6% on 24 April, after quarterly results that beat expectations (EPS 29 cents versus 1 expected). NXP Semiconductors gained between 11% and 26% (depending on the time window considered) on 28 April, with all end markets growing. Broadcom, by contrast, recorded one of the sharpest corrections of the half-year: −12.6% on 4 June on volume of 81 million shares (about 8 times the daily average of roughly 10.25 million, the highest multiple recorded in this report), equal to more than $300 billion in market capitalization lost in a single session, despite record quarterly revenue — the AI guidance for the following quarter ($16 billion versus $17.2 billion expected) failed to convince the market. Nvidia recorded elevated volumes for the entire half-year (between 150 and 290 million additional shares traded in several sessions between May and June), confirming the stock's centrality to the debate on the sustainability of AI spending: −6.20% on 5 June, coinciding with the semiconductor sell-off triggered by Broadcom's guidance, then −4.13% on 23 June in the sector's broader decline linked to fears of AI-theme overvaluation (Micron −13%, semiconductor index −7.9%). Micron gained about 16% in a single session on 24-25 June, on record revenue of $41.46 billion (+346% year over year) driven by demand for AI-related HBM memory. Texas Instruments gained 8-9% in late January with its first sequentially rising guidance in sixteen years. Nokia posted +12% pre-market on 23 April — the highest level in Helsinki since 2010 — driven by its AI/Cloud segment (+49%) and a direct $1 billion investment from Nvidia. ASML gained more than 115% year-to-date by mid-July, with quarterly bookings nearly double expectations. STMicroelectronics, by contrast, showed just how sensitive the sector remains to forward-looking guidance: +15.8% in April on solid quarterly results, then −15% in July on guidance for the following quarter only slightly below expectations.
The overall picture indicates that AI continues to generate real value in semiconductors, but the market tends to punish even minimal deviations from expectations; the high trading volumes indicate that these reactions reflect a broad repositioning around the AI narrative, not isolated moves.
Automotive — tariffs, court rulings and structural pressure
The automotive segment went through a half-year shaped more by judicial developments than by market demand. The US Supreme Court ruling of 20 February had a positive impact on the results of Ford (+6% after-hours on 29 April, on volume of about 69.6 million shares — roughly 21% above the trailing three-month average — EPS 66 cents versus 19 expected, aided also by a $1.3 billion tariff refund) and General Motors (+1.3% on 28 April, an estimated benefit of about $500 million from the IEEPA ruling). In Europe the dynamic remains the one already described in the employment report: double-digit profit declines for BMW and Mercedes-Benz, under pressure from residual tariffs, Chinese price competition and a still-costly electric transition; Volkswagen closed a weak quarter (−1.78% on 30 April) despite improving free cash flow. Tesla recorded the sharpest swing of the half-year among automotive stocks: −14.4% in a single session on 23 July, on volume of about 114.8 million shares traded (about 3.6 times the daily average) — the clearest signal in the half-year of a broad, not marginal, market reaction — after quarterly results showed operating margin falling to 1.4% (from 4.1% the year before) despite record deliveries of 480,126 units. In Asia, Toyota closed its fiscal year (March 2026) with operating profit down 21.5% due to US tariffs (about ¥1.38 trillion), while Hyundai and Kia posted record revenue but operating profit down about 27-31%.
Construction/AEC and Mechanics/Automation — less visible growth, driven by AI demand
With less media visibility but solid results: Caterpillar touched as much as +9.7% and a new all-time high on 30 April, with a record $63 billion backlog supported by data-center demand (the Power & Energy segment grew 32%). Atlas Copco gained 7.25% after solid quarterly results, driven by demand for vacuum systems used in semiconductors. These are the two cases that best illustrate how AI-driven demand growth also reaches the more traditional segments of industrial mechanics, through demand for physical infrastructure. European construction (Vinci, Eiffage, Saint-Gobain, Heidelberg Materials) had a flatter half-year instead, with muted stock reactions despite growing backlogs and revenue.
Energy — the weight of geopolitics
With the outbreak of the Iran-Israel-US conflict, oil prices returned to the center of market attention. Brent came close to $120 a barrel before easing back, then climbed above $100 again in late July as fighting resumed. TotalEnergies beat profit expectations by 18%, despite about 15% of its production being temporarily halted due to the disruption in the Middle East. BP more than doubled its quarterly profit thanks to energy-trading gains, gaining about 20% since late February. Vestas, on the renewables side, posted its best first quarter since 2018 in terms of margin (3.2% from 0.4%), indicating that the energy transition keeps progressing even in a year dominated by fossil-fuel headlines. Behind the single "Energy" label, however, sit three distinct markets: an oil & gas segment driven by war, a $67 billion merger (NextEra-Dominion) signaling utilities' shift toward growth stocks, and a renewables split between a US administration cancelling wind leases and a Europe still posting record backlogs.
Rail/Naval — a consolidation with no notable market events
The segment saw no particularly notable market events, but an underlying theme remains significant for anyone following engineering employment: the M&A talks over Talgo (with Stadler Rail as a possible acquirer) and Fincantieri's record backlog (€74.2 billion) indicate that in this segment too, demand for production capacity — and therefore for skilled labor — remains high.
Part 2 — Deep dive: Defense/Aerospace, the geopolitics behind the numbers
The central takeaway from this sector in the first half of 2026 is that defense demand in Europe no longer depends solely on political will, but on available industrial capacity. The financial commitments are there, expressed in the target of 5% of GDP by 2035 agreed in The Hague in 2025, but turning them into delivered frigates, missiles and munitions requires factories, engineers and supply chains that did not exist ten years ago, when the sector was considered in structural decline.
The half-year timeline
28 February 2026 — The US and Israel attack Iran, starting a conflict that will drag on for months. It is the first geopolitical shock of the half-year and puts pressure on air-defense systems: demand for missile interceptors (from the American Patriot to the Korean Cheongung) becomes concrete.
Spring 2026 — While Iran dominates headlines, the war in Ukraine continues with a significant tactical evolution: the Ukrainian long-range drone offensive hits Russian refineries, with the strike on Omsk (2,500 km from the front) on the eve of the July NATO summit, confirming that the drone war has become as central as the artillery war.
24 June 2026 — Germany cancels the F126 frigate program, Rheinmetall loses 19% in a single session and the entire segment hits its yearly lows — confirming that even in the sector most favored by the half-year's context, individual programs can still fall through.
7-8 July 2026 — The NATO summit in Ankara marks a turning point: more than $50 billion in new contracts, a $40 billion anti-drone program ("Drone Edge"), the start of direct NATO negotiations to buy Saab GlobalEye surveillance aircraft. The summit also highlights some tensions within the Alliance: no date set for the next summit, Spain isolated and publicly criticized by Trump, and tensions over Greenland once again affecting the transatlantic relationship.
23 July 2026 — In the United States, Lockheed Martin and RTX close the half-year with quarterly results describing a more linear trend than their European counterparts: solid growth and rising backlogs (more than $500 billion combined). This confirms that the Pentagon's post-Ukraine "restock" cycle, less dependent on political decisions tied to a single summit, is proceeding more steadily than its European counterpart.
The employment figure: more than a million jobs
Beyond the stock-market moves, the most significant figure for this analysis remains the employment one: the European aerospace-defense segment has reached 1.1 million direct employees (+6.9% year over year according to the latest ASD report), confirmed by the hiring plans of individual groups — Rheinmetall is targeting 40,000 employees (+30% from pre-boom levels), Thales received 1.4 million applications for its 2026 hiring plans, Leonardo is targeting 75,500 employees by 2030. This is concrete confirmation of what markets express more erratically: demand for engineers, technicians and skilled workers in European defense reflects a structural shift in the labor market, consistent with the thesis at the core of Vespri's ERM report on automotive-defense adjacency.
Notes
Sources: SIPRI (2025 global military spending), ASD (Aerospace, Security and Defence Industries Association of Europe), official company press releases and quarterly reports, Tax Foundation (IEEPA tariff estimate), public stock-market quotes. Where available, every price change is accompanied by trading volume or its multiple relative to the daily average; the availability of this data is uneven across the US, Europe and Asia and is flagged explicitly when missing.