Core Insights - US defense stocks are experiencing a strong start in 2026, continuing the positive momentum from the previous year due to rising geopolitical tensions and increased military spending plans [1][6] Company Performance - Contractors L3Harris Technologies Inc. and Huntington Ingalls Industries Inc. have seen an 11% increase in stock prices during the first five trading days of 2026, partly driven by a rally following the US military operation in Venezuela [2] - Major peers like Northrop Grumman Corp. and Lockheed Martin Corp. have risen approximately 4% or more, while drone manufacturer AeroVironment Inc. has surged over 40% [2] - L3Harris advanced 40% and Northrop gained 22% last year, attracting investors due to the promise of rising global security spending [4] Market Trends - The defense sector has been a focus for investors since the geopolitical landscape shifted following Russia's invasion of Ukraine, with increased emphasis on security spending [6] - The recent gains in defense stocks are supported by a more hawkish US administration and reasonable valuations, presenting an attractive risk-reward scenario for investors [5] Global Market Movement - European defense stocks such as BAE Systems Plc and Rheinmetall AG have also advanced, with shares up 5% and 1.4% respectively, while Asian defense stocks like Hanwha Aerospace Co. and Aerospace Industrial Development Corp. have shown similar upward trends [5]

Core Insights - Defense contractors' shares surged following President Trump's proposal to significantly increase the military budget to $1.5 trillion for 2027, up from $1 trillion [1][6] Group 1: Stock Performance - Shares of Lockheed Martin (LMT), Huntington Ingalls (HII), and L3 Harris (LHX) rose over 7%, leading gains in the S&P 500 index [2] - General Dynamics (GD) and Northrop Grumman (NOC) saw increases of more than 4%, while RTX Corp. (RTX) gained 2% [2] Group 2: Budget Details - The Department of Defense had a budget of $850 billion in fiscal 2025, which was an increase of $34 billion from the previous year [3] - The White House proposed an increase of over $113 billion for the fiscal 2026 defense budget [3] - Trump's proposed budget represents a roughly 50% increase from the current budget levels [3] Group 3: Market Reactions - The gains in defense stocks on Thursday reversed losses from the previous day, when Trump criticized companies for spending on stock buybacks and dividends instead of enhancing manufacturing processes [4]

Military Strategy & Recruitment - Western militaries are facing a renewed urgency to increase their size, primarily due to the situation in Ukraine [1] - A persistent recruitment crisis has left many military forces unable to fully staff their existing, smaller armies [1]

Inflation Risks - Euro zone inflation risks are skewed to the upside as the economy gathers momentum [1] - Governments are starting to spend large sums on military and infrastructure [1] Monetary Policy - ECB's Isabel Schnabel made the statement regarding inflation risks [1]

Government Initiatives - 加拿大将更广泛地利用国有银行向国防工业的公司提供贷款和风险投资 [1] - 这是从增加的军事开支中获取经济利益的一系列措施的一部分 [1]

Military Spending - Europe's military spending will reach approximately $180 billion, more than double the 2021 expenditure [1] - Europe's military expenditure surpasses that of the United States [1] - Military spending in Europe is projected to increase further [1]

Market Focus - Japanese government bond market traders are closely monitoring for signs of increased pressure from President Trump on Japan to significantly increase military spending [1]

Company Overview - A 142-year-old UK engineering firm is gaining stock market attention [1] - The firm is run by the sixth generation of its founding family [1] Industry Trend - Investors are focusing on the company's ties to rising military spending [1]

Industry Overview - The Aerospace & Defense industry is experiencing a significant uptrend, with the S&P Aerospace & Defense Select Industry Index increasing by 43.23% year to date, outperforming the S&P 500's gain of 13.90% in the same period [1]. Demand Drivers - Ongoing conflicts in the Middle East and the prolonged Russia-Ukraine war have led to increased demand for missiles and fighter jets, boosting sales for defense contractors [2]. Supply Chain Challenges - Persistent supply chain disruptions, exacerbated by the Trump administration's trade policies, have negatively impacted production efficiency and delayed backlog execution across the industry [2]. Company Earnings Highlights Northrop Grumman - Northrop Grumman reported third-quarter 2025 earnings of $7.67 per share, exceeding the Zacks Consensus Estimate of $6.49 by 18.2%. Total sales were $10.42 billion, missing the estimate of $10.72 billion by 2.8%, but up 4.3% from $10 billion in the same quarter last year [4][6]. - The company is expected to participate in bids for the U.S. administration's $175 billion Golden Dome missile defense system, which could support long-term revenue growth [5]. - Northrop Grumman's total backlog increased to $91.45 billion at the end of Q3 2025, up from $89.74 billion at the end of Q2 2025 [6]. RTX Corporation - RTX Corporation reported third-quarter 2025 adjusted EPS of $1.70, beating the Zacks Consensus Estimate of $1.42 by 19.7%, and improving 17.2% from $1.45 in the same quarter last year [7]. - Third-quarter sales reached $22.48 billion, surpassing the estimate of $21.48 billion by 4.6% and increasing 11.9% from $20.09 billion in Q3 2024 [8]. - RTX's backlog for Q1 2025 was reported at $217 billion [8]. Lockheed Martin - Lockheed Martin reported third-quarter 2025 adjusted earnings of $6.95 per share, exceeding the Zacks Consensus Estimate of $6.33 by 9.8%, and up 2.2% from $6.80 in the previous year [10]. - Net sales were $18.61 billion, beating the estimate of $18.56 billion by 0.3% and increasing 8.8% from $17.10 billion in the year-ago quarter [11]. - Lockheed Martin's backlog as of September 28, 2025, was $179.07 billion, up from $176.04 billion at the end of 2024 [12]. Investment Opportunities - The aerospace and defense industry maintains an optimistic outlook, with rising military spending expected to continue due to the current geopolitical climate [13]. - Investors may consider various Aerospace – Defense ETFs, including iShares U.S. Aerospace & Defense ETF (ITA), Invesco Aerospace & Defense ETF (PPA), SPDR S&P Aerospace & Defense ETF (XAR), Global X Defense Tech ETF (SHLD), and U.S. Global Technology and Aerospace & Defense ETF (WAR) [14]. - XAR is noted as the cheapest option for annual fees at 0.35%, making it suitable for long-term investing [14]. - SHLD is highlighted as the most liquid option with a one-month average trading volume of about 1.38 million shares, ideal for active trading strategies [15].

Military Expansion - Poland has almost doubled the size of its military [1] - Poland has boosted military spending to nearly 5% [1] Geopolitical Context - Russia has grown more assertive [1]