DAX: DE40 down 0.5% as growth momentum fades 📉 Profit-taking pressures defense stocks

Investor sentiment in Europe reflects a more cautious tone today. The spotlight is on Germany’s defense sector, where we continue to see profit-taking following last week’s gains. Rheinmetall shares (RHM.DE) are down more than 2.5%, extending a pullback of nearly 10% from recent highs.

• German Stock Market Sentiment Wavers on Monday, but DAX Drops Just 0.4%
• Rheinmetall and Siemens Energy shares are under pressure, suggesting investors are taking profits.
• Gainers include Adidas, Puma, Norma Group, and Evotec; however, overall volatility in German equities remains limited.
• Markets remain attentive to progress in U.S.–China talks, while concrete details on Trump's agreement with Europe are still lacking.
• Citi analysts point out that German equities still have room to rise, particularly among mid-cap companies. 

Citi’s forecast suggests that sentiment toward German markets may remain solid this year, though mid-cap stocks in the MDAX, with more attractive valuations, could draw increased attention. Citi’s commentary referenced a €46 billion fiscal package, a potential favorable trade deal with the U.S., and planned corporate tax cuts starting in 2028.

 

Source: xStation5

Leading German Megacaps are under pressure today. Source: Bloomberg Finance L.P.

Profit-taking pressures German defense stocks

Germany’s defense sector is experiencing a wave of profit-taking after months of strong performance. Despite solid long-term fundamentals — including large order backlogs and favorable political dynamics — many stocks now appear fully priced based on demanding valuations. Last week’s announcement that Germany plans to raise defense spending to 3.5% of GDP was met with a muted market reaction.

• RENK Group shares are down nearly 2% today, following a 6%+ drop last Friday after BNP Paribas Exane downgraded the stock from “Neutral” to “Underperform”, with a price target set at €72, roughly in line with the current market price.
• Rheinmetall received a price target upgrade to €2,300 with an “Outperform” rating, but shares declined on Friday and are down again by more than 2% today. HENSOLDT also failed to respond positively to an upgrade to “Neutral”.

Valuations across the sector have become so demanding that even bullish factors — like rising government defense budgets, M&A opportunities, and strategic partnerships — are no longer significantly boosting investor sentiment toward Rheinmetall. The company also faces production capacity constraints, and markets may now be questioning whether today’s favorable environment can stand the test of time.

Source: xStation5

Rheinmetall valuation multiples

The company’s price-to-earnings (P/E) ratio stands at 90, with a forward P/E of 57 over the next 12 months — quite stretched for an industrial manufacturer. However, on the other hand, Rheinmetall’s unmatched capacity in European artillery ammunition production provides pricing power and secures its position for years to come. Its margins remain exceptionally strong, especially for a heavy industry company — a rare combination that underpins the firm's longer-term appeal.

Source: XTB Research, Bloomberg Finance L.P.

Source: XTB Research, Bloomberg Finance L.P.