Geopolitical developments have boosted defense stocks.

Defense Stocks Started the New Year Strongly

With the increasing global geopolitical tensions and the unveiling of significant military spending plans, defense industry stocks made a promising start in 2026. In particular, U.S. President Donald Trump's request for a $1.5 trillion defense budget triggered a new wave of growth across the sector.

Surge in U.S. Defense Stocks

Defense industry stocks in U.S. stock indices recorded significant gains in the early days of this year. Major contractors such as L3Harris Technologies and Huntington Ingalls saw an increase of 11% at the beginning of the year. Additionally, AeroVironment, which engages in unmanned aerial vehicle production, experienced an increase of over 40%.

A Market Full of Risks

Although the new regulations introduced by the Trump administration created some short-term selling pressure for the defense sector, the $1.5 trillion budget request overshadowed these concerns. Analysts emphasize that the administration's hawkish stance has shifted reasonable valuations and the risk-return balance in favor of investors. Jefferies analysts predict that the increased budget could boost earnings per share for giants like Northrop Grumman and General Dynamics by more than 10%.

Global Impacts and Threat Perception

These positive developments have not been limited to the United States. Companies like BAE Systems and Rheinmetall in Europe, as well as South Korean and Japanese defense companies in Asia, have gained value in the market. However, Gabelli Funds Portfolio Manager Tony Bancroft noted that the $1.5 trillion budget request is a significant amount, emphasizing that geopolitical instability has made spending mandatory: "The world is becoming an increasingly dangerous place."

Potential Reversals and Warnings

On the other hand, amidst market optimism, some risks should not be overlooked. Stocks of major players like RTX and Lockheed Martin are currently in the "overbought" territory, and a correction process is expected. Additionally, there are warnings about a potential short-term pullback in defense industry stocks if a ceasefire is achieved in Ukraine. However, this could present new buying opportunities for long-term investors.