BAE Systems shares jumped 5.5% on Monday as Middle East tensions escalated over the weekend, driving investor interest in defence stocks. JPMorgan analysts highlighted the UK defence contractor as a prime beneficiary of potential US defence budget increases, with the company generating approximately 44% of its sales from the US defence market.

President Trump's January 2026 announcement of a 50% increase in the US defence budget for fiscal 2027 has created optimism in the sector, though JPMorgan analysts believe a 20-30% increase may be more realistic. The analysts noted that the higher tempo of US military operations in 2026 is creating pressure to increase defence spending, particularly for missile inventory restocking.

Media reports from June 2025 indicated the US used 15-25% of its entire THAAD interceptor inventory during a 12-day conflict, deploying approximately 100 to 150 interceptors from a stock of around 650. BAE Systems provides the infrared seeker used in the THAAD guidance system, generating approximately $1 million per unit. Other UK defence stocks also gained, with Rolls-Royce rising 0.9% and Meggitt climbing about 3% as of 11 AM GMT.