Military Spending Surge Powers Defense ETFs in 2026

Geopolitical tensions across multiple regions—from recent U.S. military operations in Syria and Venezuela to escalating U.S.-Iran conflict risks—continue to shape market dynamics in 2026. This uncertain environment is keeping investor sentiment volatile and positioning geopolitical risk as a defining theme for the year. Supporting this backdrop is a significant rise in projected global military expenditure, which is expected to create substantial tailwinds for defense ETFs and aerospace contractors alike.

Geopolitical Tensions Drive Record Defense Budgets

In January 2026, President Trump proposed a $1.5 trillion U.S. military budget for 2027, marking a dramatic jump from the $901 billion approved for 2026. This acceleration reflects broader global trends. According to Forecast International, worldwide military expenditures are projected to reach $2.6 trillion by end of 2026, with further expansion anticipated to $2.9 trillion by the decade’s close.

The scaling up of defense budgets is substantial. Derek Bisaccio, Forecast International’s lead analyst for defense markets and strategic analysis, noted that the expected $2.6 trillion in global military spending represents an 8.1% increase from 2025 levels. The United States remains the dominant player, accounting for the largest share of global military and warfighting investments. This spending momentum is clearly visible in sector performance—the S&P Aerospace & Defense Select Industry Index has surged 54.05% over the past twelve months, far outpacing the S&P 500’s 15.49% gain.

Capital Expenditure Push Accelerates Industry Investments

Under Trump administration pressure to prioritize weapons production over shareholder returns, U.S. defense giants are aggressively ramping up capital investments. According to Reuters, major U.S. defense firms are slashing dividends and buyback programs in favor of accelerated capital spending. Melius Research estimates that five leading U.S. defense contractors will collectively deploy $10.08 billion in capital expenditure during 2026—a staggering 38% increase from 2025 levels.

This capital-intensive push is reshaping financial priorities across the sector and setting the stage for accelerated manufacturing capacity and production.

Major Defense Contractors Deliver Strong Q4 Results

Lockheed Martin: Robust Revenue Growth Amid Execution Challenges

Lockheed Martin (LMT), the nation’s largest defense contractor by volume, posted fourth-quarter 2025 adjusted earnings of $5.80 per share, slightly trailing the consensus estimate of $6.24. However, the earnings jumped 161.3% year-over-year from $2.22, driven by higher operating profits and expanded revenues.

The company’s fourth-quarter sales climbed to $20.32 billion, surpassing consensus expectations of $19.83 billion and rising 9.1% from the prior-year quarter’s $18.62 billion. For full-year 2025, LMT generated $75.05 billion in revenue, exceeding forecasts and demonstrating sustained momentum. The company’s order backlog reached $193.62 billion as of December 31, 2025—up significantly from $176.04 billion a year earlier. LMT projects capital spending between $2.50 and $2.80 billion, signaling continued investment in production capabilities.

RTX Corporation: Earnings Upside with Positive 2026 Guidance

RTX Corporation (RTX) delivered fourth-quarter 2025 adjusted EPS of $1.55, exceeding the Zacks estimate of $1.46 by 5.9%. While earnings growth was modest at 0.6% year-over-year, revenue performance was more impressive.

Fourth-quarter sales totaled $24.24 billion, crushing expectations of $22.74 billion and climbing 12.1% from the year-ago period’s $21.62 billion. For full-year 2025, RTX reported revenues of $88.6 billion versus $80.74 billion in 2024. Looking ahead, the company guided for 2026 adjusted EPS between $6.60 and $6.80, with sales projected in the $92-93 billion range—signaling confident expansion into 2026.

Northrop Grumman: Record Backlog Underpins Long-Term Outlook

Northrop Grumman (NOC) delivered strong results with fourth-quarter 2025 earnings of $7.23 per share, up 13.15% year-over-year and beating the consensus estimate of $7.00 per share. Fourth-quarter sales reached $11.71 billion, slightly exceeding expectations of $11.62 billion.

Full-year organic sales rose 3% to $42.0 billion, buoyed by robust international demand expansion of 20%. Most notably, NOC’s backlog climbed to a record $95.7 billion in 2025, up 4.6% from 2024—a testament to sustained global demand and positioning the company for multi-year revenue visibility and profitable growth.

Top Defense ETFs Offer Exposure to Sector Tailwinds

The aerospace and defense sector is primed for continued expansion driven by elevated geopolitical risks and rising military spending commitments. For investors seeking to capitalize on strong corporate earnings and accelerating defense budgets, several defense ETFs provide streamlined sector exposure:

• iShares U.S. Aerospace & Defense ETF (ITA) - Broad exposure to leading U.S. defense and aerospace companies
• Invesco Aerospace & Defense ETF (PPA) - Diversified approach to the defense sector
• SPDR S&P Aerospace & Defense ETF (XAR) - Tracks the S&P Aerospace & Defense index
• Global X Defense Tech ETF (SHLD) - Specialized focus on defense technology
• First Trust Indxx Aerospace & Defense ETF (MISL) - Active-managed approach to aerospace and defense
• U.S. Global Technology and Aerospace & Defense ETF (WAR) - Blended exposure combining technology and defense themes

These defense ETF options enable investors to participate in the anticipated surge in military spending and the strong earnings momentum from sector leaders, positioning portfolios for potential upside as geopolitical pressures and capital expenditure trends persist through 2026 and beyond.