This week we watched unprecedented political events and markets reacted to what they saw. CNBC's Silvia Amaro reports on how European defense names have dropped on a potential end to the war in Ukraine.

New York

European defense stocks experienced a decline following diplomatic efforts aimed at a potential ceasefire in Ukraine. Key European leaders, alongside Ukraine's President Zelensky, traveled to Washington to encourage continued U.S. support for Kyiv, resulting in commitments to security guarantees and the prospect of direct talks between Ukraine and Russia.

Market analysts noted that while the prospect of peace has led to a drop in defense sector shares, the long-term outlook for defense spending remains strong. Even with a possible agreement, ongoing needs for resupplying and protecting infrastructure are expected to sustain demand in the sector.

Defense stocks down on a potential Ukraine ceasefire

In our Moment of the Week, we are highlighting the unprecedented geopolitical events, and of course, their subsequent market repercussions. We started this week watching European officials worry about whether the U.S. President, Donald Trump, had shifted his stance on Ukraine after meeting his Russian counterpart, Vladimir Putin, in Alaska. Seven leaders, including the French president, the German Chancellor, and the British Prime Minister, decided to travel alongside the President Zelensky to Washington, D.C., in an effort to push President Trump to support Kyiv. Now, there's still a lot of detail to be worked out, but Europe appears to have gotten most of what it wanted, at least for now, of course. This includes a commitment that the United States will support security guarantees for Ukraine, and President Trump's willingness to set up a face-to-face meeting between President Zelensky and Putin. They also avoided a major diplomatic disaster like the one we witnessed back in February, the last time that President Zelensky had visited the Oval Office. But from a market perspective, the discussions actually have raised one question. Will an end to the war in Ukraine, even if unlikely in the near term, lead Europe to spend less on defense? European defense names actually dropped for two straight sessions amid the geopolitical developments, and are on track to end the week broadly in the red. However, many still believe that the medium to long-term story has not changed, and that an end to the war in Ukraine will not erase the recent political shift towards more defense spending. For the defense sector, maybe in the short term, it would mean a bit of a downturn because, yeah, obviously people would reconsider the investment in those companies. But I guess for the longer term, there is still so much resupplying that we need to do, so much rebuilding, that I think for the next, well, three to five years, for the defense sector, there is actually a very strong business case. Even if there is an agreement with Russia, between Russia and Ukraine, there will still be a big emphasis on defense, for example, on protecting critical national infrastructure. And so I think that the market should also take that into account, that, you know, for example, a peace deal, which will be, I think, a long process, is not a short term, you know, it's not an end to the relationship between Russia and Europe.

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Kyiv

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Breakdown