The Week Ahead (12th-16th January) - Defence stocks zoom higher

Hello and welcome to the latest edition of the Week Ahead!

The first full week of 2026 is behind us, and it has been a strong start for the markets.

The S&P 500 is already up 1.3% year-to-date:

And the FTSE is already up 2%:

I’ve spent the past week or two trying to ignore global politics - particularly Trump’s intervention in Venezuela, and also the unrest in Iran.

The markets haven’t been ignoring it, however. And the ramifications of these events, however grisly this might be, have been positive.

BAE Systems (LON:BA.) , for example, is up by a remarkable 20% year-to-date.

The saying “elephants don’t gallop” has never really been true, and certainly not for defence stocks during times of international tension.

BAE hasn’t even issued a relevant announcement - the price action of this £60bn stock has been entirely driven by external news. President Trump, in particular, has asked for US military spending to rise by over 50% to $1.5 trillion in 2027 (2026 budget: $901 billion).

Such a spending bonanza would ripple through the entire defence sector both in the US and internationally, generating windfall gains for these companies and their suppliers (if they even have the capacity to fill orders of this magnitude?).

Trump has argued that the spending could be paid for through tariff income. According to official figures, US Customs collected over $200 billion in tariffs in 2025, in a year when tariffs were not raised until April. So perhaps there is some plausibility to this claim?

Either way, there is a long road ahead for his defence spending idea: his administration first has to produce an actual proposal for FY 2027 (expected in early February), and then it will slowly work its way through Congress, perhaps being approved in time for the start of the new fiscal year in October. Although based on how previous budgets have been received, it could be quite a bit later than that.

For defence stocks this means a potentially long wait until we find out how realistic is Trump’s $1.5 trillion idea. But his intent is clear!

Looking ahead in the short-term, next week will see updates from various companies that we like to follow in our daily reports: the likes of Games Workshop (LON:GAW), MS International (LON:MSI) and Ramsdens Holdings (LON:RFX) are expected to publish results. There are also a healthy number of trading updates scheduled, including Ab Dynamics (LON:ABDP), Vistry (LON:VTY), and Whitbread (LON:WTB).

In short-term economic news, we already had US non-farm payrolls on Friday 9th: it came in below expectations at 50,000 new jobs, compared to 60,000 new jobs that had been forecast.

Source: tradingeconomics.com

This “low-hire environment” in the words of Fed banker Thomas Barkin, is due to a combination of economic uncertainty and higher productivity (AI, presumably?).

Whatever the reason, with inflation still above the target, the Fed is not expected to cut rates at its meeting on January 28th. Indeed, it is not expected to cut rates again before Chair Jerome Powell leaves office in May.

Interestingly, President Trump told the New York Times this week that he has in mind who he will nominate to be the next Fed Chair, but hasn’t said who it might be.

DefiRate, which provides data on prediction markets, says that the most likely nominee is Kevin Warsh, followed closely by Kevin Hassett. Between them, they have a 80% chance of getting the nomination: so we are very likely to be hearing one of these names for many years to come!

Closer to home, we should have monthly UK GDP data on Monday, with a consensus forecast of 1.1% year-on-year growth (unchanged from the prior reading).

Source: tradingeconomics.com

The quarter-on-quarter growth rates are what define a technical recession (when they are negative twice in a row), and they were dangerously close to being negative in Q2 and Q3:

Source: tradingeconomics.com

So the UK economy might not be in a recession, but it’s close - we can expect many companies to continue to say that the environment remains difficult.

---

Economic Calendar

Companies Reporting