Defense Spending in a Volatile World: Why ITA is a Strategic Long-Term Play

The global defense sector is undergoing a seismic shift, driven by a confluence of macroeconomic pressures, geopolitical instability, and policy-driven spending surges. For investors seeking to capitalize on this transformation, the iShares U.S. Aerospace & Defense ETF (ITA) emerges as a compelling vehicle. With the U.S. defense budget locked in a framework of fiscal constraints and strategic expansions, and global conflicts inflating military expenditure worldwide, ITA's portfolio of defense contractors is uniquely positioned to benefit from a multiyear boom.

Macroeconomic Context: Fiscal Caps and Strategic Leverage

The U.S. defense budget for fiscal year (FY) 2025 is capped at $895 billion under the Fiscal Responsibility Act of 2023, a figure that reflects both legislative compromise and the Biden administration's prioritization of national securityWhat Are Key Milestones and Decisions Affecting U.S. Defense Spending in 2025^[1]. While this cap imposes short-term rigidity, it also underscores the sector's resilience: even amid broader fiscal debates, defense remains a non-negotiable line item. According to a report by the Center for Strategic and International Studies (CSIS), the Department of Defense has maintained operational readiness in conflict zones like Ukraine and the Middle East despite these constraintsWhat Are Key Milestones and Decisions Affecting U.S. Defense Spending in 2025^[1].

However, the landscape is set to shift dramatically in FY 2026. The One Big Beautiful Bill Act (OBBBA), signed into law by President Trump on July 4, 2025, injects an additional $150 billion into defense spending, with a focus on shipbuilding, nuclear modernization, and missile defenseOne Big Beautiful Bill Act Makes $150B Investment in Defense^[4]. This legislation not only alleviates immediate fiscal pressures but also signals a long-term commitment to industrial base revitalization—a critical tailwind for ITA's holdings in aerospace and defense manufacturing.

Geopolitical Drivers: Conflicts as Catalysts for Growth

Geopolitical volatility is accelerating defense spending far beyond U.S. borders. The war in Ukraine has become a financial and strategic linchpin: the U.S. has allocated $175 billion in aid since 2022, with $128 billion directly supporting Ukraine's military capabilitiesWhat Are Key Milestones and Decisions Affecting U.S. Defense Spending in 2025^[1]. Meanwhile, the Middle East remains a flashpoint, with U.S. military engagement surging in response to regional instability and great-power competition.

Globally, the Stockholm International Peace Research Institute (SIPRI) reports that military expenditure rose by 12% in 2024, with Europe and the Middle East accounting for the largest increasesUnprecedented Rise in Global Military Expenditure as ...^[2]. The U.S. alone contributes 37% of global military spending, a figure that is unlikely to decline as allies and adversaries alike ramp up their arsenalsUnprecedented Rise in Global Military Expenditure as ...^[2]. For ITA, which includes firms like Lockheed Martin, Boeing, and Raytheon Technologies, this global arms race translates into sustained demand for advanced weaponry, surveillance systems, and logistics infrastructure.

Policy-Driven Tailwinds: Modernization and Readiness

The FY 2025 defense budget request of $849.8 billion prioritizes modernization, with significant investments in artificial intelligence, directed energy, and space capabilitiesDepartment of Defense Releases the President's Fiscal Year 2025 Defense Budget^[3]. These initiatives align with ITA's exposure to next-generation technologies, as component companies increasingly pivot toward digital warfare and autonomous systems.

The OBBBA further amplifies this trend by allocating $45 billion for shipbuilding and $30 billion for nuclear modernization, addressing long-standing bottlenecks in U.S. military readinessOne Big Beautiful Bill Act Makes $150B Investment in Defense^[4]. Such policy-driven spending is not merely reactive—it is a strategic recalibration toward multi-domain deterrence, ensuring that ITA's portfolio remains integral to national security infrastructure.

ITA: A Strategic Long-Term Play

The iShares U.S. Aerospace & Defense ETF (ITA) offers investors diversified exposure to a sector insulated from typical economic cycles. With the U.S. defense budget accounting for 66% of NATO spending, and global military expenditure projected to exceed $2.4 trillion by 2026, ITA's holdings are poised to outperform across multiple macroeconomic scenariosUnprecedented Rise in Global Military Expenditure as ...^[2].

Moreover, the ETF's focus on companies engaged in both domestic and international contracts—such as Northrop Grumman's stealth aircraft programs or General Dynamics' armored vehicle production—ensures that it benefits from both U.S. policy shifts and global demand. As SIPRI notes, the European and Middle Eastern markets are expected to grow by 8–10% annually through 2027, further diversifying revenue streams for ITA constituentsUnprecedented Rise in Global Military Expenditure as ...^[2].

Conclusion

In an era of persistent conflict and strategic realignment, defense spending is no longer a cyclical concern but a structural inevitability. The interplay of fiscal discipline, geopolitical urgency, and technological innovation creates a robust foundation for the iShares U.S. Aerospace & Defense ETF. For investors seeking to hedge against uncertainty while capitalizing on a sector in ascendance, ITA represents a strategic, long-term play—one that aligns with the realities of a world where peace remains a distant aspiration.