Al Root
The aerospace and defense sector has been a standout lately, free from AI disruption fears and boosted by higher demand for commercial air travel and global defense spending.
The sector just hit some turbulence. Investors probably have some time to wait before the skies clear.
Lockheed Martin stock was down 3% in midday trading, on pace for its lowest close since January, according to Dow Jones Market Data. It reports first-quarter results on Thursday and wasn't part of the Tuesday "bloodbath," as Vertical Research Partners analyst Rob Stallard put it.
Shares of Northrop Grumman, GE Aerospace, and RTX all fell hard after reporting better-than-expected earnings.
"While it may seem pretty obvious, we think investors have been reluctant to acknowledge that the War in the Middle East is more negative for the aerospace sector than understood," wrote Stallard.
While GE Aerospace maintained full-year financial guidance and said things were trending toward the higher end of the range, it reduced its expectation for global air travel growth, which unnerved investors.
The entire defense sector traded off on Tuesday. The iShares Aerospace & Defense ETF lost almost 4% and was down 2.5% in midday trading on Wednesday. Investors are worried about " peak defense," says Stallard. "Where is your upside to a +50% annual DoD budget request, with an unexpected military conflict on top?"
President Donald Trump recently proposed $1.5 trillion in defense spending for fiscal year 2027, up roughly 50% from fiscal year 2026. Higher spending is great, but investors wonder what happens after that.
There is also a rotation going on. Aerospace and defense were, well, defensive. That is to say, they were insulated from AI disruption fears that have plagued other sectors, such as software.
"The rotation that has defined 2026...driven by geopolitical risk and the HALO trade (Selling AI/Tech for 'Heavy Asset, Low Obsolescence' names), looks to be pausing post the pivotal Mar. 30 market low," wrote Evercore ISI analyst Julian Emanuel on Wednesday.
With stocks and oil pricing in an eventual "off-ramp" in Iran, investors are taking profits, adds Emanuel. "In true financial market style, [things peaked] right as Operation Epic Fury began."
Through midday trading, the iShares Aerospace & Defense ETF was down about 11% since fighting began in Iran.
Where that leaves investors now is a good question. Defense earnings will continue to grow faster than in recent years. Spending isn't going away. Shares are still more expensive than they were before. L3Harris Technologies stock, for instance, trades for about 27 times earnings expected over the coming 12 months, up from 20 times a year ago.
Overall, shares of large defense contractors are about 25% more expensive than they were a year ago. GE Aerospace looks to be in a better position. Shares trade for about 35 times earnings, virtually the same multiple as a year ago.
That doesn't mean GE stock will rebound soon. The stock market can be fickle.
Recent losses left the iShares ETF up just 1% year to date, but still up almost 50% over the past 12 months.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 22, 2026 13:06 ET (17:06 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments