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Jan 8, 2026 12:20 PM

Defense Stocks Rally As Trump Pledges $1.5T Military Budget: What's Moving Markets Thursday?

Defense stocks surged Thursday, erasing the prior session's losses, after President Donald Trump floated a sharp increase in U.S. military spending that caught Wall Street's attention.

Trump said the federal military budget could rise from the Congress-approved $900 billion to $1.5 trillion by 2027.

The iShares U.S. Aerospace & Defense ETF (NYSE:ITA) rose 1.4%, while the State Street SPDR Aerospace & Defense ETF (NYSE:XAR) soared 3.3%. The gains fully reversed Wednesday's pullback, when defense names sold off after Trump ordered to halt dividends and share buybacks.

Small-cap contractors led the charge. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) jumped 18%, while Red Cat Holdings, Inc. (NASDAQ:RCAT) gained 12%. Karman Holdings Inc. (NYSE:KRMN) rose 10%.

Among larger names, Leonardo DRS Inc.