The FTSE 100 Index soared to a record high of £10,153 earlier this week and then pulled back to the current £10,000. It remains 33% above its lowest level in April last year.
BAE Systems, Babcock, and Rolls-Royce are leading the rally
Companies in the defense industry have continued the bull run they started a few years ago as investors position themselves for more demand this year.
BAE Systems stock has jumped by 19% this year, making it the top gainer in the FTSE 100 Index. It has jumped by 75% in the last 12 months and 300% in the last five years.
Babcock International stock has jumped by 16% this year and is up by nearly 200% in the last 12 months.
Rolls-Royce Holdings stock has jumped by 10% in 2026 and is now up by 121% in the last 12 months. It has been one of the most resilient companies in the FTSE 100 Index after soaring by over 1,000% in the last five years.
These companies have one thing in common: they are all defense contractors and have a presence in the United States. In a Truth Social post, the US president said that the US will boost its defense spending from nearly $1 trillion today to over $1.5 trillion.
He reiterated this view in an interview with Sean Hannity, the popular Fox News host. Trump argues that the rising geopolitical tensions will request the country to produce more weapons compared to what is happening today.
On top of this, Trump warned that companies in the industry will need to boost their production and invest in plants in the country, noting that many of them were spending huge sums of money on dividends and share buybacks.
BAE Systems, Babcock, and Rolls-Royce Holdings are the biggest players in the military contracting industry. They manufacture equipment like ships, artillery, mortar systems, and engines.
BAE Systems, Babcock, and Rolls-Royce have a presence in the United States, meaning that they will benefit from this spending boost.
European countries are also spending more money on their defense now that tensions with the US are rising. Data shows that the EU spent over €314 billion in defense in 2024, up sharply from €221 billion in 2021. Estimates are that the EU’s defense spending will jump to over €392 billion this year, led by Germany.
Other top movers in the FTSE 100 Index
The other top movers in the FTSE 100 Index are Glencore and Rio Tinto. While their stocks are little changed this year, they may experience some heightened volatility in the coming days after they restarted their merger talks, which will create the biggest mining company in the world. A merger would create a company with an enterprise value of over $260 billion.
The two companies are considering an all-share merger, a move that will combine all their operations, with Rio Tinto shareholders retaining most of the shares in the combined entity.
This deal would come a few months after Anglo American concluded its buyout of Teck Resources. These companies are aiming to boost their market share in the copper mining industry, which has thrived recently as its price has jumped to a record high.
READ MORE: Why Glencore-Rio Tinto merger buzz could signal a new phase of mining sector consolidation
Meanwhile, Associated British Foods is the main laggard in the FTSE 100 Index this year, with its stock falling by 13%. Coca-Cola stock fell by 6.6%, while Shell is down by 6.5%. Other top laggards in the index are companies like Admiral Group, Tesco, DCC, British American Tobacco, and Unilever.
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