ZACKS·2026-01-09 18:01Group 1: Defense Spending and Market Impact - President Trump's proposal for a $500 billion increase in annual defense spending has led to a rally in defense stocks globally, with European defense stocks rising by as much as 3.8% on January 8, 2026, and a weekly advance of approximately 13% [1][2] - Global military spending reached a record $2.718 trillion in 2024, marking the 10th consecutive year of growth, with a 37% increase since 2015 and a 9.4% rise in 2024, the largest annual increase since at least 1988 [4] - Following geopolitical tensions, all 32 NATO members increased their defense budgets in 2024, with 18 countries meeting or exceeding the 2% of GDP target set by the bloc [5] Group 2: Executive Actions and Industry Outlook - An executive order signed by Trump mandates major U.S. defense contractors to suspend stock buybacks, halt dividend payments, and cap executive pay at $5 million annually, directing more capital towards factory expansion and weapon development [6] - The S&P 500 earnings for the December quarter are projected to rise by 62.3% year-over-year, with the aerospace sector expected to show the highest earnings growth among 16 sectors [7] Group 3: Valuation and Performance Metrics - The Zacks Aerospace-Defense industry ranks 95, placing it in the top 39% of over 250 Zacks industries, while the aerospace sector holds a strong Zacks Sector Rank of 3 [8] - The aerospace sector's debt-to-equity ratio stands at 0.19X, significantly lower than the S&P 500 average of 0.57X, indicating a more conservative financial structure [9] - The iShares US Aerospace & Defense ETF (ITA) has increased by about 55% over the past year, compared to a 17% rise in the SPDR S&P 500 ETF Trust (SPY), although the industry now trades at a forward P/E of 22.97X, higher than the S&P 500's 18.58X [12]