The Russia-Ukraine war has been escalating geopolitical tensions. The participation of Western countries in providing military and financial aid to Ukraine has exposed them to the potential effects of the war. Russia has suggested it may use nuclear weapons on countries aiding Ukraine, so these governments are increasing their defense budgets. President Biden’s proposed 2023 Pentagon budget includes $813 billion in spending for national defense, up 4% from the country's last defense appropriation.
This backdrop should benefit aerospace and defense companies. Investor optimism in this space is evident in the Invesco Aerospace & Defense ETF’s (PPA) 7.3% gains over the past three months versus the SPDR S&P 500 Trust ETF’s (SPY) 3.2% loss. The global aerospace and defense market is expected to grow at an 8.5% CAGR to $1.05 trillion by 2026.
