At the NATO summit this week Carney made the formal commitment to ramp up defense spend to 5% of GDP by 2035, a target we framed as ambitious in January.

The news is the latest in a long line of defense wins including Carney’s recent 2% target for 2025 and a proposed 13% defense increase in the U.S. budget, but the enthusiasm in markets was less widespread this time around.

While there’s still a fundamental case to be made for owning the sector I’m betting the “narrative shift” part of this trade has played out, with both the short and long-term stage now set and reflected in Canadian defense valuations.

With multiples on most of the basket now trading well-above their three year average, companies will have to earn their premium on a go-forward basis and a selective approach to sector exposure could outperform from here.