Defence stock baskets have beaten the market by up to nine-fold over the past five years - will NATO spending commitments drive further gains?

• European defence basket returned +813% over five years, compared with +80% for the FTSE 100

• US defence basket gained +307%, versus +92% for the S&P 500

• NATO leaders are pushing members towards spending 5% of GDP on defence by 2035

London, July 2026 - Defence stocks have become one of the world's strongest-performing investment themes, with a basket of Europe's largest defence companies delivering returns around nine times greater than the S&P 500 and more than ten times those of the FTSE 100 over the past five years, according to new analysis from trading and investing platform IG.

IG created two equalweight baskets of  largest (by market capitalisation) listed defence companies across Europe and the US, finding that European defence stocks returned an average 813% over the past five years, while a basket of major US defence firms gained 307%.

Both hugely outperformed the wider market. Over the same period, the S&P 500 returned 92%, while the FTSE 100 gained 80%.

The analysis comes as NATO leaders meet this week with defence spending dominating the agenda. Alliance members are under increasing pressure to accelerate plans to spend 5% of GDP on defence by 2035, while NATO has already announced more than $40 billion of investment in anti-drone capabilities over the next five years, signalling that higher military spending is set to remain a defining feature of the global economy for years to come.

European manufacturers have been among the biggest beneficiaries of the global rearmament cycle following Russia's invasion of Ukraine in 2022. Germany's Rheinmetall and Britain's Rolls-Royce have each delivered returns of almost 1,400% over the past five years, while Swedish defence company Saab has climbed more than 940%.

Table shows performance of biggest European defence companies against FTSE 100

The world's largest US defence contractors have also comfortably beaten the market, delivering average returns of 306.9% over five years - more than three times the performance of the S&P 500.

Howmet Aerospace has risen 777.2%, while General Electric has climbed 517.8%. RTX has returned almost 170%, with Lockheed Martin continuing to generate solid gains. Boeing has lagged the rest of the sector following a series of operational and manufacturing challenges.

Table shows performance of biggest US defence companies against S&P 500

Chris Beauchamp, Chief Market Analyst at IG, said:

"Defence has become one of the defining investment themes of the past five years. Geopolitical tensions, the war in Ukraine and a fundamental shift in government spending priorities have driven a remarkable re-rating across the sector, with investors increasingly pricing in stronger earnings and long-term order books.

"What's particularly interesting about this year's NATO summit is that the discussion has shifted from whether countries should increase defence spending to how quickly they can do it, and where that money will be invested. That's an important distinction because markets tend to respond to procurement programmes and future earnings rather than political rhetoric.

"The latest commitments reinforce the idea that higher defence spending is unlikely to be a short-lived trend. Markets have already priced in a significant amount of optimism, but if governments follow through on these pledges, defence could remain one of the market's most important long-term structural growth stories."

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Table methodology:
Table shows total share price returns (GBP) over one, two and five years for companies included in IG's defence baskets, alongside the basket averages and benchmark indices. Source: Bloomberg. Past performance is not an indicator of future returns.

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