US defense spending record

What happened: The Trump administration is significantly increasing U.S. defense spending, with a focus on rebuilding weapons stockpiles. This comes as total global defense spending reached a record $2.6 trillion in 2025, with the U.S. spending more than the next eight countries combined. The U.S. Navy plans to expand to 355 ships by 2040, with a 30-year shipbuilding plan costing $306 billion. Meanwhile, Japan is increasing defense spending and revising its arms exports guidelines, while Baltic states warn of an unfunded debt surge due to Europe's defense splurge.

Market impact: This narrative drives increased demand for defense contractors like Lockheed Martin, Raytheon Technologies, and General Dynamics. It also boosts the shipbuilding industry, benefiting companies such as Huntington Ingalls Industries and Northrop Grumman. The shift in Japan's defense policy may open opportunities for international collaboration and exports. However, it could also strain European economies, impacting defense-related investments and potentially leading to valuation repricings.

What to watch next: Investors should monitor the U.S. defense budget approval process, with a focus on the 2021 National Defense Authorization Act (NDAA) and any potential changes to the 30-year shipbuilding plan. Additionally, keep an eye on Japan's defense spending and arms exports, as well as the European Commission's response to the Baltic states' debt concerns, which could influence defense-related investments across the continent.