Defense stocks have seen significant gains this January. The S&P Aerospace & Defense Select index is up roughly 11% so far in 2026. This rise appears to be driven by increased geopolitical tensions, a boost in defense budgets, and anticipations of further government investments in military tech in the near future.
The State Street SPDR S&P Aerospace & Defense ETF (NYSEMKT: XAR) has also experienced a boost, up about 10.5% year-to-date, while the popular S&P 500 index has only increased by around 1%.
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Three particular defense stocks are noteworthy, each rising over 20% in just about a month during 2026.
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Lockheed Martin (NYSE:LMT) has surged by an impressive 26% this year.
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Northrop Grumman (NYSE:NOC) increased by 20%.
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Huntington Ingalls Industries (NYSE:HII) saw a gain of over 24%.
Given the factors currently propelling these stocks upward, there’s a belief they could climb even higher as the decade progresses.
In his second term, President Trump has publicly urged NATO allies to ramp up defense spending. While the original guideline was set at 2% of GDP for each member, this goal increased to 5% by 2035 following pressure from the U.S. administration. Out of this 5%, 3.5% is to go directly to defense spending, with the rest earmarked for defense infrastructure.
This is a notable shift, especially with NATO countries like Germany, the UK, and France among the largest economies. Germany is planning to double its defense budget in the next five years, targeting that 5% goal by 2030.
Currently, global defense expenditures are projected to hit $2.6 trillion this year, reflecting an 8.1% increase from 2025. It’s further estimated to reach $2.9 trillion by the end of 2027.
We also have two significant U.S. defense initiatives under President Trump: the Golden Dome missile defense system and the Golden Fleet program for the Navy, both of which are expected to elevate U.S. defense spending. Lockheed Martin, Northrop Grumman, and Huntington Ingalls Industries are key contractors for these projects.
Trump’s naval plans include introducing a new class of battleships, referred to as the Trump class. As noted by a colleague, it seems like “everyone in the defense sector stands to benefit from these new battleships.”
Furthermore, Trump’s recent push for acquiring Greenland has caused ripples in the North Atlantic Alliance, prompting the European Union to quicken investments in its defense capabilities, including air defense and cyber operations.
The tensions between the U.S. and Iran are escalating, making the Middle East increasingly precarious. An analyst from Forecast International noted that “nearly every Middle Eastern nation is either involved in conflict or neighboring a country that is,” emphasizing that this dynamic will likely push countries to enhance their defense budgets.
Just last week, the Trump administration greenlit significant arms sales: $6.67 billion to Israel and $9 billion to Saudi Arabia. These sales include products manufactured by U.S. defense companies, like Patriot missiles and Apache helicopters.
So, who really benefits from such expansive sales? Primarily U.S. defense firms. It’s a turbulent world out there, and countries are clearly arming themselves accordingly, which bodes well for U.S. defense companies and their investors.
Before investing in the SPDR State Street S&P Aerospace & Defense ETF, here are some considerations:
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