FRANKFURT (dpa-AFX) - Wednesday's relief rally in the European defense sector proved to be short-lived on Thursday. Shares in Rheinmetall, Hensoldt, Renk, and TKMS all edged lower amid a broadly weak market environment. Analysts pointed to profit-taking ahead of the long Easter weekend and cautious sentiment following a speech by US President Donald Trump.

While the Dax retreated 1.4 percent after three consecutive days of gains, Rheinmetall shares limited their losses to 0.4 percent after initially dropping as much as 3 percent. In the MDax, Hensoldt, Renk, and TKMS saw more pronounced declines, falling between 0.9 and 3.7 percent.

The sector has been rattled by the prospect of a US withdrawal from NATO, a threat issued by President Trump on Wednesday due to what he perceived as a lack of support in the conflict with Iran. However, these concerns eased slightly overnight. Trump's State of the Union address, while causing fresh uncertainty with renewed threats against Iran, made no mention of NATO. Furthermore, he is facing bipartisan pushback from the US Senate.

In a joint statement, Democrat Chris Coons and Republican Mitch McConnell asserted that Americans are safer when NATO is strong. "The Senate will continue to support the alliance as it provides peace and protection to America, Europe, and the world," the statement read. In any case, Trump cannot unilaterally decide on a withdrawal; such a move would require a two-thirds majority in the US Senate.

Deutsche Bank analyst Christophe Menard posited a scenario where a US exit would significantly weaken the alliance, potentially forcing European nations to increase spending and reduce their reliance on US weaponry. However, he emphasized that Trump would be unlikely to secure Congressional approval for a formal withdrawal. "The political hurdles for a formal US exit from NATO are high," added his colleague, market strategist Jim Reid.

Rheinmetall shares had surged nearly 10 percent on Wednesday during a recovery attempt, while submarine builder TKMS jumped more than 14 percent. While analyst comments and easing NATO fears fueled that rally, it is too early to speak of a trend reversal. Rheinmetall's stock remains mired in a short-term downtrend that began in January.

Rheinmetall failed to find further support on Thursday despite Kepler Cheuvreux highlighting an encouraging presentation by CEO Armin Papperger. Analyst Michael Raab noted that Papperger emphasized numerous growth opportunities and detailed the group's execution capabilities, which Raab viewed as a confirmation of the positive investment thesis.

Speculation over rising defense spending has propelled Rheinmetall higher since the outbreak of the Ukraine war in 2022, but the momentum stalled in October after hitting the 2,000-euro mark. In 2026, the stock finds itself in the unaccustomed position of being a middle-of-the-pack performer in the Dax. Currently, the shares are struggling to remain in positive territory for the year to date./tih/err/jha/