Defense ETFs in Focus: Q4 Earnings & 2026 Spending Boost

Geopolitical tensions have accounted for the bulk of market volatility so far in 2026, from U.S. military actions in Syria and Venezuela earlier in January to renewed risk of an escalating U.S.-Iran conflict.

This fragile backdrop is keeping markets on edge, reinforcing the view that sustained geopolitical uncertainty will likely shape investor sentiment and emerge as a recurring theme throughout 2026. This is further underscored by expectations of rising global military spending in the year ahead.

Record Defense Budgets Fuel Aerospace & Defense Momentum

In early January, President Trump proposed a $1.5 trillion U.S. military budget for 2027, a sharp increase from the $901 billion approved for 2026. According to analysts at Forecast International, global defense outlays are expected to climb to $2.6 trillion by the end of 2026, with momentum pointing toward $2.9 trillion by the decade's end, as quoted on National Defense Magazine.

Per Derek Bisaccio, defense markets and strategic analysis lead analyst at Forecast International, the projected $2.6 trillion in global defense spending marks an 8.1% increase over 2025, led by the United States, which remains the world’s largest spender on military and warfighting capabilities, as quoted in the abovementioned article.

The uptrend in the Aerospace & Defense industry is also evident from the performance of the S&P Aerospace & Defense Select Industry Index, which has added 54.05% over the past year, surpassing the S&P 500's 15.49% gain in the same period.

Trump Pressure to Push Capex Higher

According to Reuters, U.S. defense giants are ramping up capital expenditure this year, with capital reinvestment anticipated to jump more than 30% this year, following President Trump’s warning to curb dividends and share repurchases in favor of accelerated weapons production.

Per Melius Research, as quoted on the abovementioned Reuters article, five leading U.S. defense firms are projected to lift capital spending to $10.08 billion in 2026 collectively, marking a nearly 38% jump from 2025 levels.

Earnings in Focus

Below, we highlight the fourth-quarter results of a few renowned U.S. Aerospace – Defense industry players.

Lockheed Martin

Lockheed Martin LMT reported fourth-quarter 2025 adjusted earnings of $5.80 per share, which missed the Zacks Consensus Estimate of $6.24 by 7.1%. The bottom line increased 161.3% from the year-ago quarter's reported figure of $2.22. The year-over-year improvement in earnings was primarily driven by higher revenues and operating profit generated in the fourth quarter.

Net sales were $20.32 billion, which beat the Zacks Consensus Estimate of $19.83 billion by 2.5%. The top line also inched up 9.1% from $18.62 billion reported in the year-ago quarter. LMT, the largest U.S. defense contractor by output, reported sales of $75.05 billion in 2025, which were higher than $71.04 billion in 2024. The full-year top-line figure beat the Zacks Consensus Estimate of $74.55 billion.

The company’s backlog as of Dec. 31, 2025, was $193.62 billion compared with $176.04 billion as of Dec. 31, 2024. LMT expects capital expenditure of approximately $2.50-$2.80 billion.

RTX Corporation

RTX Corporation’s RTX fourth-quarter 2025 adjusted earnings per share (EPS) of $1.55 beat the Zacks Consensus Estimate of $1.46 by 5.9%. The bottom line also improved 0.6% from the year-ago quarter’s level of $1.54.

RTX’s fourth-quarter sales totaled $24.24 billion, which surpassed the Zacks Consensus Estimate of $22.74 billion by 6.6%. The top line also surged a solid 12.1% from $21.62 billion recorded for the fourth quarter of 2024. For 2025, the company reported revenues of $88.6 billion compared with $80.74 billion last year.

RTX now expects 2026 adjusted EPS to be in the band of $6.60-$6.80 and 2026 sales to be in the range of $92-$93 billion.

Northrop Grumman

Northrop Grumman NOC reported fourth-quarter 2025 earnings of $7.23 per share, which improved 13.15% from the year-ago quarter, driven by continued robust segment performance, and beat the Zacks Consensus Estimate of $7.0 per share by 3.29%

NOC’s fourth-quarter total sales of $11.71 billion beat the Zacks Consensus Estimate of $11.62 billion by 0.83%. For full-year 2025, organic sales rose 3% to $42.0 billion, supported by robust international growth of 20%.

Strong global demand drove Northrop Grumman’s backlog to a record $95.7 billion in 2025, marking a 4.6% increase from 2024. This sustained demand and record backlog position the company for sustainable long-term growth.

ETFs to Consider

The aerospace and defense industry maintains an optimistic outlook. Given the current geopolitical climate, the trend of rising military spending is likely to persist.

For investors looking to bet on fourth-quarter results as well as the continued surge in military spending, the following Aerospace – Defense ETFs provide a great opportunity.

Investors can consider 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, First Trust Indxx Aerospace & Defense ETF MISL and U.S. Global Technology and Aerospace & Defense ETF WAR.

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This article originally published on Zacks Investment Research (zacks.com).

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