Indexology^® Blog

Defense has had more than just its 15 minutes this year.

On the football pitch, Spain demonstrated the value of a formidable defense, conceding just once en route to winning the 2026 World Cup.¹ Yet the rhetoric surrounding England’s exit fixated on almost the opposite claim: too much defense can cost you.

Building From the Back

In Europe’s rather more consequential defense debate, one common refrain has been that more spending is a must. Russia’s invasion of Ukraine, conflict in the Middle East and a changing geopolitical order have sharpened the focus on military preparedness.

EU member states spent EUR 418 billion on defense in 2025, equivalent to 2.2% of GDP, with expenditure estimated to reach EUR 454 billion, or 2.4%, in 2026.² At the 2025 NATO Summit, Allies committed to spending 5% of GDP annually on defense and security-related requirements by 2035, including at least 3.5% on core defense.³ Europe is also turning commitments into procurement through instruments including the EU’s EUR 150 billion SAFE facility.⁴

Against this backdrop, Exhibit 1 charts the historical performance of the S&P Europe Defense Vision Index alongside rising European defense expenditure. Geopolitical events have punctuated performance, but the spending trajectory points to a potentially more structural shift underpinning Europe’s defense story.

Rethinking the Arsenal

What Europe spends that money on matters too.

A modern military still requires missiles, ships and armored vehicles. But increasingly, it also relies on drones and autonomous systems, radar and guidance systems, battlefield communications, satellites, cyber capabilities and software. NATO Allies have committed more than USD 40 billion to counter-drone capabilities over five years, while the U.K. has allocated more than GBP 5 billion to drones and autonomous-system transformation.^{5, 6}

Private capital is moving in the same direction. European defense start-ups had raised USD 7.4 billion by Sept. 20, 2026, versus USD 2.6 billion in all of 2025, with drones and autonomous systems accounting for 74% of EU defense-tech funding.⁷ German-based Helsing alone raised USD 1.8 billion at a USD 18 billion valuation.⁸

This is where S&P Global Business Involvement Screens data adds an important dimension. Military Contracting revenue exposure spans Integral Military Weapons, Weapon-Related Products and Non-Weapon-Related Products. As Exhibit 2 illustrates, this reflects not just weapons, but the technologies, components and services underpinning modern military capabilities.

Making the Cut

That broader interpretation is reflected in the index. At the October 2026 rebalance, Military Contracting involvement represented 70.2% of the S&P Europe Defense Vision Index on a constituent-weighted basis, while Weapons exposure stood at just 10.9%. Defense Technology & Products accounted for 28.1%, alongside activity in other areas including cybersecurity.

Exhibit 3 puts these characteristics into context. Relative to both the April 2026 rebalance composition and a more traditional GICS^® industry approach, the October rebalance emphasizes military contracting and defense technology more heavily, with less exposure to aerospace. The increase in Military Contracting involvement, a sign of greater thematic purity, also reflects a growing pool of eligible, pureplay European defense companies. Although not explicitly targeted, greater European revenue exposure also aligns with the push for regional defense autonomy.

Europe’s defense landscape is no longer confined to conventional aerospace and defense. Weapons and combat platforms remain critical, but drones and autonomy, cyber, communications, space and software increasingly form part of the wider ecosystem.

And Europe’s defense plans extend well beyond a halftime team talk. As Europe commits more resources to defense, the threats it faces and capabilities required to address them will continue to evolve. Keeping pace with that evolution will likely require not only greater spending, but a longer-term vision of what defense may become.

By looking beyond traditional sector boundaries while retaining a direct link to military business involvement, the S&P Europe Defense Vision Index offers a distinct lens for tracking Europe’s evolving defense era.

References:

¹ FIFA. “Spain Complete Unprecedented Global Double as New Milestones on the Pitch Define Historic FIFA World Cup 2026 Finale.” July 20, 2026.

² European Defence Agency. “EU Defence Spending: €418 Billion in 2025, Projected to €454 Billion in 2026.” July 16, 2026.

³ NATO. “The Hague Summit Declaration.” June 25, 2025.

⁴ European Commission. “SAFE”.

⁵ NATO. “NATO Allies Invest 40 Billion Dollars in Counter-Drone Capabilities and Drone Training.” July 7, 2026.

⁶ UK Ministry of Defence. “UK Drone Transformation to Strengthen Armed Forces Backed by More Than £5 Billion.” June 29, 2026.

⁷ Dealroom.co and Resilience Media. “State of Defence Tech 2026.” October 2026.

⁸ Defense News. “Helsing Raises $1.8 Billion in Europe’s Biggest Defense-Startup Round.” July 13, 2026.

The world’s first “live stream,” believe it or not, wasn’t a digital one. For millennia, water has been the world’s primetime network, connecting economies, industries and communities.

Still Waters Run Deep

From agriculture and power generation to manufacturing and cities, water provision is an essential element of the global economy. That importance is becoming more visible as new sources of demand for water, including the expansion of digital infrastructure, are added to existing pressures from population growth, urbanization and climate variability.

Head in the Clouds, Feet in the Water

Perhaps fittingly, even digital clouds have a water story of their own.

AI is becoming an increasingly important part of the global economy, and the data center capacity supporting it is expanding rapidly. S&P Global projects global data center power demand to nearly double between 2026 and 2030.¹ At the same time, an estimated 43% of data centers globally are exposed to high water stress this decade, rising to 45% by the 2050s, bringing efficient water provision and management increasingly into focus.²

The scale of the challenge goes beyond scarcity. Water infrastructure itself requires substantial investment. A recent World Economic Forum report estimates a EUR 6.5 trillion global water infrastructure gap, while annual investment in water and sanitation infrastructure averages only around EUR 41 per person.³

Economic growth therefore depends not simply on water availability, but on the infrastructure required to capture, treat, distribute, manage and reuse it.

The Tide in Our Affairs

AI growth and water availability need not be contradictory. As digital infrastructure expands and water stress intensifies, greater recycling, treatment and more efficient water management will become increasingly important.

This significant role for water echoes themes explored in our recent clean energy and agribusiness discussions: water sits within a broader resource story, alongside energy and other commodities shaping everyday life and future growth.

Exhibit 2 charts the historical performance of the S&P Global Water Index. The index recorded an 11.20% annualized total return over the 10-year period shown. Evolving demands across the economy reinforce the relevance of water infrastructure, treatment, efficiency and management across cycles.

Innovation is following that demand. In 2026, Veolia Water Technologies recorded EUR 343 million in water-technology bookings from the microelectronics industry, while Emerald Technology Ventures’ Global Water Fund II reached EUR 100 million, targeting water infrastructure, treatment, reuse and emerging technologies.^{4, 5}

Every Drop Counts

The S&P Global Water Index measures companies in water-related businesses across developed and emerging markets, spanning Water Utilities & Infrastructure and Water Equipment & Materials. The recent October rebalance added 10 constituents, including Acea SpA and Daiei Kankyo, and dropped three, as the index continues toward its target count of 100 constituents. Of its 73 constituents, 32 derive more than 75% of revenue from relevant water-related activities, a nod to the index’s thematic purity. By company domicile, the U.S. (58.9%) and U.K. (12.8%) account for the largest index weights, reflecting markets where listed water utilities play a greater role than in many predominantly state-owned systems globally.

Business activity breadth is evident in Exhibit 3. According to Theia Insights Industry Classification (TIIC) data, water treatment and management represents the largest thematic exposure, alongside environmental sustainability, fluid handling and smart technologies, spanning water provision, treatment, filtration, monitoring and related equipment.

As new demands and stressors continue to flow through the global economy, the provision, treatment and management of water remain firmly in focus. Water is not simply another input: almost every part of the economy, and life itself, ultimately depends on it. The S&P Global Water Index has helped investors navigate high waters by tracking listed companies spanning the infrastructure and provision that underpin the global water system.

The author would like to thank Myrna Ghanem for her contributions to this blog.

¹ S&P Global Market Intelligence. “Data Center Power Demand to More Than Double by 2030.” June 15, 2026.

² S&P Global Ratings. “Beneath the surface: Water stress in data centers.” Sept. 15, 2025.

³ World Economic Forum. “Bridging the €6.5 Trillion Water Infrastructure Gap: A Playbook.” December 2025.

⁴ Veolia Water Technologies. “Veolia accelerates growth in microelectronics with €343 million in water technology bookings.”

⁵ Smart Water Magazine. “Emerald Water Fund II Hits €100 Million with Backing from Temasek and Grundfos Foundation.” March 11, 2026.

In today’s age of prediction markets and AI-driven forecasts, little is still certain. El Niño is no exception.

Its consequences can ripple across producers, supply chains, consumers and investors, offering plenty of food for thought. Shifting weather patterns can pressure harvests, commodity markets and food prices, bringing the resilience of the global food system into sharper focus.

Weathering the Forecast

El Niño, the periodic warming of the tropical Pacific Ocean, can alter rainfall and temperature patterns around the world. Its effects are neither uniform nor certain, with the risks of drought, flooding and temperature extremes varying across regions. By October 2026, the probability of a very strong El Niño had reached 100% through October-December 2026, with strong conditions expected into early 2027.¹

Agriculture provides one of the clearest transmission mechanisms. Weather anomalies can affect planting windows and crop yields, influencing farm input decisions, inventories and trade flows. Those impacts can reach commodity prices, creating potential winners and losers. S&P Global’s 2026 agriculture modeling cut its Brazilian corn forecast by 6 million metric tons to 137 million, with a further 10 million of downside if El Niño strengthens, while wetter conditions lifted Argentina’s corn forecast by 2 million metric tons.²

Exhibit 1 charts the S&P Commodity Producers Agribusiness Index alongside the latest El Niño outlook.

Growing Appetite for Resources

El Niño does not stop at the farm gate. A rainfall shock affecting crops can also constrain water for irrigation and hydropower, linking food and energy systems. Energy has charted its own odyssey, but remains a critical input into agriculture through fertilizer production, machinery and transport.

Resources are increasingly contested. Agriculture accounts for more than 70% of global freshwater withdrawals, while AI infrastructure is adding another source of water and energy demand.³ By 2030, AI data centers are projected to consume 945 TWh of electricity per year, with an associated water footprint equivalent to the annual basic domestic needs of 1.3 billion people.⁴

The result is an increasingly interconnected food-water-energy system, where pressure on one resource can quickly flow through to others (see Exhibit 2).

Those interdependencies matter particularly in 2026. El Niño is arriving against a stressed backdrop, with energy disruption and constrained fertilizer availability adding pressure across the food system. In other words, El Niño is less a single shock than a potential force multiplier for pressures already moving through the food system.

Betting the Farm on Innovation

Greater weather variability also sharpens the incentive to produce more efficiently with constrained resources. Across agriculture, 2026 innovation spans autonomous and precision machinery, AI-enabled crop management, advanced genetics, biological crop protection and more efficient plant nutrition.

That innovation is visible across areas represented in the index. For example, Deere & Company continues to advance autonomy and precision-application technologies, while Corteva, following the spin-off of its seed business, Vylor, has highlighted a USD 11 billion innovation pipeline spanning biologicals and differentiated crop-protection technologies.⁵ Innovation is also extending into plant nutrition, with the International Fertilizer Association launching its first industry-wide innovation benchmark in 2026.⁶

Together, these developments point toward technologies designed to improve agricultural productivity, resource efficiency and resilience.

The Whole Food Chain

The agribusiness opportunity is not a prediction about which crop will benefit from the current or next El Niño. The S&P Commodity Producers Agribusiness Index spans the systems required to grow, process and ultimately deliver food, including companies involved in seeds and crop protection, fertilizers, agricultural machinery, grains and oils, meat and poultry, and feed and by-products (see Exhibit 3).

The challenge of feeding a growing, evolving world extends beyond any single El Niño cycle, with the S&P Commodity Producers Agribusiness Index tracking companies across a food system where productivity, resource efficiency and resilience are enduring priorities.

References:

¹ NOAA Climate Prediction Center. “Official NOAA CPC ENSO Strength Probabilities”. October 2026.

² S&P Global Institute. “Energy Disruption and El Niño: Leading to a Global Food Crisis?”. Oct. 19, 2026.

³ Food and Agriculture Organization of the United Nations. “The State of the World’s Land and Water Resources for Food and Agriculture 2025”. Dec. 1, 2025.

⁴ United Nations University Institute for Water, Environment and Health (UNU-INWEH). “Environmental Cost of Artificial Intelligence: Carbon, Water, and Land Footprints.” June 2026.

⁵ Corteva Agriscience, “Corteva Begins New Chapter as Focused, Innovation-Led, Global Crop Protection Leader”. Oct. 1, 2026.

⁶ International Fertilizer Association. “Fertilizer Innovation Unleashed”. June 2026.

The S&P 500^® fell 1% in October and dropped by 4% on Nov. 5, 2026, its worst day since April 2025, as AI-related worries weighed on tech stocks.¹ Smaller caps have offered a refuge: in October, the S&P MidCap 400 and S&P SmallCap 600 outperformed the 500 by 3% and 4%, respectively.

Mega-cap stocks have dominated headlines, but historically, smaller companies have had an outsized impact on market returns. In particular, the S&P MidCap 400 and the S&P SmallCap 600 outperformed the S&P 500 over the past quarter century.²

One mechanism that may help explain why small caps have tended to outperform larges caps is their value tilt, as small caps have typically traded at lower valuations than large caps.³ Exhibit 2 shows that, as of Sept. 30, 2026, the S&P 600 and S&P 400 traded at forward price-to-earnings (P/E) ratios of 13.0 and 14.6, respectively, compared to a forward P/E of 18.4 for the S&P 500.⁴

By combining the S&P 500 with the S&P MidCap 400 and the S&P SmallCap 600, the S&P Composite 1500^® encompasses larger and smaller stocks, offering a more comprehensive view of the domestic stock market. Notably, the S&P Composite 1500 covers more than 95% of the cumulative U.S. equity market capitalization,⁵ as proxied by the S&P Total Market Index.

This inclusion of smaller companies has meant that the S&P 1500™ has outperformed the S&P 500 over the long term.⁶ However, the outperformance of the index as a whole does not necessarily extend to the performance of the component stocks in the index. For example, 70% of companies within the S&P 1500 underperformed the index in 2025.

The minority of outperforming stocks is evidence of the positive skew seen in equity returns,⁷ with the average return exceeding the median. This skew highlights a possible benefit of indexing over active stock selection, since when fewer stocks outperform, active management tends to be more difficult.

The S&P Composite 1500 brings together companies from across the U.S. equity market, combining the size and stability of large-cap companies with the growth potential of mid- and small-cap stocks. As empirical evidence underscores the challenge of identifying tomorrow’s winners through individual stock selection,⁸ this index can provide a simple and diversified way to measure the breadth of the U.S. market.

¹ Ganti, Anu. “AI Anxiety or Opportunity.” S&P Dow Jones Indices LLC. Oct. 28, 2026.

² Brzenk, Phillip and Hamish Preston. “The S&P Composite 1500: An Efficient Measure of the U.S. Equity Market.” S&P Dow Jones Indices LLC. May 28, 2020.

³ Fama, Eugene F., and Kenneth R. French. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics Volume 33, Issue 1, 1993, Pages 3-56.

⁴ Edwards, Tim and Sherifa Issifu. “Hidden in Plain Sight: U.S. Equities Beyond the S&P 500^®.” S&P Dow Jones Indices LLC. April 13, 2021.

⁵ Preston, Hamish. “Celebrating 30 Years of the S&P Composite 1500.” S&P Dow Jones Indices LLC. May 19, 2025.

⁶ 8.5% annualized total return for the S&P 1500 versus 8.3% for the S&P 500, from Dec. 31, 1999, to Sept. 30, 2026

⁷ Ganti, Anu. “Skewing Success.” S&P Dow Jones Indices LLC. Sept. 30, 2025.

⁸ For more information, please see our SPIVA^® U.S. Mid-Year 2026 Scorecard. Note that more than 90% of funds in the All Domestic Funds Category underperformed the S&P Composite 1500 over trailing time periods longer than five years.

A company’s commercial address tells only part of its story. Its customers tell another. In the S&P Global 100, U.S.-domiciled companies represented 80.7% of index weight as of Sept. 30, 2026, yet 53.9% of estimated index-weighted revenue came from outside the U.S. For this group of 100 multinational companies, the location of sales brings the index’s international character into focus.

Since our June 2025 review, the largest companies have increased their weight in the index, and sector leadership has shifted from Financials to Information Technology (IT). For investors assessing international business activity as trade policies change, the index provides a focused view of major multinationals.

Where Domicile and Revenue Diverge

As of Sept. 30, 2026, the S&P Global 100^®’s U.S. revenue share of 46.1% was close to the S&P Global 1200’s 47.0%; the corresponding U.S. domicile weights were 80.7% and 68.2%, respectively. The S&P 500^® had a 100% U.S. domicile weight and a 57.8% U.S. revenue share. The S&P Global 100’s selection rules require eligible companies to generate more than 30% of revenue and hold more than 30% of assets outside their country of domicile. This screen applies across sectors, including IT.

That footprint was also evident in the earlier snapshot. Estimated U.S. revenue share was 43.8% on May 30, 2025, leaving more than half of weighted revenue generated outside the U.S. at both dates. The latest comparison therefore reinforces the multinational character highlighted in our earlier review.

Larger Companies and a Bigger Role for IT

IT’s growing prominence adds a practical dimension to this global story. Semiconductor value chains connect design, equipment and manufacturing across borders, illustrating the international networks behind technology businesses. The S&P Global 100 is float-market-cap weighted. Between May 30, 2025, and Sept. 30, 2026, its top 10 companies’ combined weight rose from 56.7% to 61.4%, an increase of 4.7 percentage points.

IT’s weight also rose from 43.8% to 47.6%. Exhibit 2 reflects both changes; more than three-fifths of index weight is in the top 10 companies and almost half is in IT. These overlapping measures show the growing influence of the largest businesses and technology within the multinational benchmark.

From Financials to IT

The sector contributions show how leadership changed within this multinational benchmark, from Financials in early 2025 to IT in the subsequent periods (see Exhibit 3).

January 2025-May 2025: Financials led, contributing 1.73 percentage points to the S&P Global 100’s 2.30% total return, while IT detracted 0.84 percentage points. By company domicile, non-U.S. constituents supplied positive contributions that more than offset the drag from U.S. companies. In the wider market, resilient profits and shareholder distributions supported European bank shares.

June 2025-December 2025: IT took the lead. The index gained 24.79%, with IT contributing 11.50 percentage points and Communication Services adding 5.25 percentage points. Together, the two sectors supplied approximately two-thirds of the net gain. 9 of the 11 sectors contributed positively. The broader U.S. technology rally in 2025 reflected enthusiasm for artificial intelligence (AI) and digital infrastructure.

January 2026-September 2026: IT’s share of the gain increased, accounting for approximately two-thirds of the index’s 14.57% gain and contributing 9.78 percentage points. Nine sectors again contributed positively, including Energy and Health Care. Across the wider technology market, AI disruption concerns weighed on software in early 2026 as investors favored semiconductor and memory suppliers.

The S&P Global 100 brings a focused group of major multinationals into one benchmark. Its international revenue base remains evident as the balance of company weights and sector contributions changes. Following revenue geography and sector contribution to index performance provides a more complete picture of the global businesses represented in the index and how their collective performance evolves.