State Street SPDR S&P Aerospace & Defense ETF

XAR

Market cap $5.67B

I reiterate my buy recommendation on State Street® SPDR® S&P® Aerospace & Defense ETF due to robust geopolitical tailwinds. XAR benefits from the U.S. national security strategy, with potential defense budget increases from $1 trillion to $1.5 trillion acting as a major catalyst. Despite XAR trading at 52-week highs and elevated P/E multiples, the military budget relative to GDP remains historically low, supporting further upside.

The defense sector faces volatility from geopolitical tensions, executive orders on contractor capital allocation, and a proposed surge in US military spending. Trump's executive order targets underperforming contractors, potentially restricting dividends and buybacks, but calls for a $1.5 trillion 2027 defense budget could offset near-term negatives. Major contractors like LMT, NOC, GD, BA, and RTX returned $80.25B to shareholders versus $29.57B in capex from 2022 to 2025, raising efficiency concerns.

Bloomberg's George Ferguson breaks down the market reaction to President Trump's calls for a $1.5 trillion dollar defense budget, as well as his threat to cut some of the most notable names in defense technology at the same time. The president took to Truth Social to single out RTX, writing that the defense contractor would no longer be doing business with the government unless it stepped up upfront spending.

5 ETFs to buy in January: momentum, small caps, chips, defense and healthcare shine as markets rally early in 2026 -- IWM, MTUM, SMH, XAR and IHE.

State Street® SPDR® S&P® Aerospace & Defense ETF tracks the S&P Aerospace & Defense Select Industry Index, with an Expense Ratio of 0.35%. Today, XAR has a forward P/E of 35.55x, and an ETF P/B of 5.15, which reflects a war premium compared to the industrial sector. In my opinion, the war premium for XAR is justified by the latent need to invest in national security.

The Direxion Daily Aerospace & Defense Bull 3X Shares ( NYSEARCA:DFEN ) is a leveraged ETF designed to amplify daily moves in the aerospace and defense sector by 3x.

Although President Trump is the first 2-term POTUS since Eisenhower to not involve the US in any wars, he is the first one to have successfully ended 8 international wars, with some of them having lasted decades.

Ukraine's signal to drop its NATO bid hits European defense shares, but the pullback may favor diversified defense ETFs like XAR.

If you're interested in broad exposure to the Industrials - Aerospace & Defense segment of the equity market, look no further than the State Street SPDR S&P Aerospace & Defense ETF (XAR), a passively managed exchange traded fund launched on September 28, 2011.

A smart beta exchange traded fund, the State Street SPDR S&P Aerospace & Defense ETF (XAR) debuted on 09/28/2011, and offers broad exposure to the Industrials ETFs category of the market.