Gabelli Portfolio Manager’s 2026 Defense & Aerospace Stock Outlook Following Strong 2025 Performance

This analysis is based on the market outlook shared by Gabelli Funds Portfolio Manager Tony Bancroft [1]. In 2025, defense and aerospace stocks significantly outperformed the broader S&P 500, which gained 15.96% [0]. Standouts included GE (+83.44%), RTX (+56.79%), the SPDR S&P Aerospace & Defense ETF (XAR: +44.65%), and the Gabelli Commercial Aerospace & Defense ETF (GCAD: +35.73% [0], managed by Bancroft).

Bancroft’s 2026 optimism aligns with global defense budget trends: NATO countries are moving toward 3.5% GDP defense spending, and the U.S. defense budget exceeds $1 trillion for 2026 [1]. J.P. Morgan expects ongoing support for the sector, highlighting commercial aerospace as a strength [2]. KeyBanc identifies stocks with exposure to high-growth defense technology, missile defense, and space-based systems as top 2026 picks [3].

1. Sector Resilience
   : The defense/aerospace sector’s 2025 outperformance indicates resilience amid broader market conditions, driven by sustained geopolitical and budgetary tailwinds.
2. Company-Specific Drivers
   : GE’s exceptional 83.44% return suggests unique company factors beyond general sector trends, which require further investigation to fully understand.
3. ETF Strategy Differences
   : GCAD’s 35.73% return (lower than XAR’s 44.65%) likely reflects variations in portfolio composition or investment strategy between the two sector ETFs.

• High-Growth Sub-Sectors
  : Defense technology, missile defense, and space systems are identified as attractive areas by KeyBanc [3] due to increasing demand.
• Sustained Demand
  : Rising global defense budgets (NATO, U.S.) provide a strong foundation for continued sector growth [1].

• Political Volatility
  : Defense budgets are susceptible to policy changes and political shifts, which could impact future spending [1].
• Budget Constraints
  : Long-term fiscal limits may curb the pace of defense spending growth.
• Geopolitical Uncertainty
  : Escalation or de-escalation of global tensions could alter defense demand dynamics.
• Supply Chain Challenges
  : Historical supply chain issues in the aerospace sector could resurface and impact production and earnings [1].

• 2025 Performance Data
  : GE (+83.44%), RTX (+56.79%), XAR (+44.65%), GCAD (+35.73%), S&P 500 (+15.96%) [0].
• 2026 Outlook
  : Defense and aerospace stocks are expected to continue outperforming, supported by rising global defense budgets and sector analyst optimism.
• Sector Recommendations
  : KeyBanc highlights high-growth sub-sectors (defense tech, missile defense, space systems) as top picks [3].
• Risk Factors
  : Political, budgetary, geopolitical, and supply chain factors warrant ongoing monitoring for stakeholders in the sector.