Geopolitical Risks and Rising Military Spending Drive Defense ETF Growth in 2026

The intersection of escalating geopolitical tensions and surging global defense budgets is reshaping market dynamics in early 2026, creating compelling opportunities for investors seeking exposure to the aerospace and defense sector through specialized investment vehicles. As regional conflicts persist and international security concerns mount, the defense etf landscape is drawing increased attention from portfolio managers looking to capitalize on sustained military spending momentum.

Global Defense Budgets Hit Record High as Tensions Mount

Geopolitical flashpoints in Syria, Venezuela, and renewed U.S.-Iran tensions have underscored the fragility of global markets and reinforced expectations that military spending will remain elevated throughout 2026 and beyond. According to Forecast International analysts, global defense outlays are projected to reach $2.6 trillion by the end of 2026, representing an 8.1% increase compared to 2025. Looking further ahead, industry forecasters anticipate global military expenditures climbing to $2.9 trillion by 2030, reflecting a structural shift toward sustained defense investment.

The United States remains the largest military spender globally, with President Trump proposing a $1.5 trillion defense budget for 2027—a dramatic jump from the $901 billion approved for 2026. This 66% year-over-year increase signals policymakers’ commitment to accelerating weapons production and military modernization. The S&P Aerospace & Defense Select Industry Index has already captured this momentum, delivering 54.05% returns over the past twelve months, significantly outpacing the broader S&P 500’s 15.49% gain.

Defense Giants Report Strong Q4 Results, Boost Capital Spending

Major U.S. defense contractors have responded to heightened geopolitical uncertainty and policy signals by aggressively ramping capital expenditures. Following President Trump’s directive to prioritize weapons production over shareholder returns, five leading defense firms are collectively expected to increase capital spending to $10.08 billion in 2026, marking a 38% surge from 2025 levels.

Lockheed Martin (LMT) demonstrated resilience in Q4 2025, reporting adjusted earnings of $5.80 per share against a consensus estimate of $6.24, though revenue exceeded expectations at $20.32 billion versus the estimated $19.83 billion. Full-year 2025 revenues of $75.05 billion surpassed guidance, while the company’s order backlog expanded to $193.62 billion—up $17.58 billion year-over-year. LMT’s planned capital expenditure of $2.50-$2.80 billion underscores its commitment to production scaling.

RTX Corporation, the diversified defense powerhouse, posted Q4 adjusted earnings per share of $1.55, beating consensus of $1.46. Fourth-quarter revenues of $24.24 billion significantly exceeded the $22.74 billion estimate, driven by 12.1% top-line growth from the year-ago quarter. Full-year 2025 revenues reached $88.6 billion, with management guiding 2026 adjusted EPS to $6.60-$6.80 and revenues to $92-$93 billion—signaling confidence in sustained demand.

Northrop Grumman (NOC) delivered Q4 earnings of $7.23 per share, surpassing consensus of $7.0, with quarterly revenues of $11.71 billion slightly exceeding the $11.62 billion estimate. The company’s full-year organic sales growth of 3% to $42.0 billion, bolstered by 20% international expansion, positioned Northrop’s backlog at a record $95.7 billion—a 4.6% increase from 2024. This expanding pipeline signals multi-year growth visibility for the company and the defense etf sector broadly.

Why Defense ETFs Offer Strategic Value in Uncertain Times

The alignment of elevated geopolitical risk, policy support for defense spending, and strong corporate execution creates a favorable backdrop for defense etf investors. Unlike individual defense stocks, diversified defense etf products provide exposure to multiple aerospace and defense subsectors while managing single-company concentration risk. The sustained nature of global military spending—driven by both near-term security concerns and long-term modernization cycles—suggests that defense etf positioning could serve as a portfolio stabilizer during periods of market volatility.

Key Defense ETFs to Monitor for Portfolio Diversification

For investors seeking comprehensive exposure to the aerospace and defense sector, several defense etf options merit consideration:

• iShares U.S. Aerospace & Defense ETF (ITA) provides broad-based exposure to leading U.S. defense contractors and suppliers
• Invesco Aerospace & Defense ETF (PPA) offers strategic weighting to sector leaders
• SPDR S&P Aerospace & Defense ETF (XAR) tracks the S&P Aerospace & Defense Select Industry Index, directly capturing the 54% outperformance referenced above
• Global X Defense Tech ETF (SHLD) emphasizes technology-driven defense innovations
• First Trust Indxx Aerospace & Defense ETF (MISL) focuses on diversified exposure across the sector
• U.S. Global Technology and Aerospace & Defense ETF (WAR) combines technology and defense themes

Each defense etf structure offers different weighting methodologies and sector exposures, allowing investors to tailor their positioning based on specific investment objectives and risk tolerance. Given the structural tailwinds supporting defense spending and the validated Q4 earnings strength from sector leaders, defense etf vehicles present compelling opportunities for portfolio construction in the current environment.