Earnings for the defense sector arrive at a pivotal time. All the uncertainty from the U.S.-Iran war has left defense industry stocks reeling, while aerospace stocks rocket higher.
Over the weekend, the fragile ceasefire between the U.S. and Iran deteriorated, with both sides exchanging bombs. The fighting is using up missiles and assets that will need to be replaced -- and ratcheting up geopolitical tensions to alarming levels. Still, the war hasn't helped defense sector shares at all.
Now, it's up to earnings to break those stocks out of their funk. Two big defense names, Lockheed Martin and Northrop Grumman, are expected to report results next week. Expectations are low as the stocks have been hammered.
Coming into Monday trading, shares of Lockheed Martin and Northrop Grumman were down 20% and 26%, respectively, since the start of the fighting.
"When it comes to pure-play defense.... investors bought the tension but sold the war," wrote Melius analyst Scott Mikus in a Monday report, pointing out that many defense and defense IT stocks are down north of 20% since the end of February.
Politics are part of the problem, he says: "According to Polymarket, there is an 84% chance that Democrats take the House and a 44% chance they sweep both chambers in the midterm elections."
(Polymarket has a data partnership with Dow Jones, the publisher of Barron's.)
That creates uncertainty for defense spending, Mikus notes, adding that the death of Sen. Lindsey Graham and the illness of Sen. Mitch McConnell, both Republicans, make it more difficult to pass spending via budget reconciliation or supplementals.
But all the chaos hasn't dampened enthusiasm for defense start-ups or aerospace firms.
On Sunday, European defense start-up Helsing, which makes artificial-intelligence-infused autonomous weapons systems, among other products, announced it raised $1.8 billion, valuing the company at $18 billion. That's more than the market value of Huntington-Ingalls Industries, which makes subs and aircraft carriers.
The most valuable defense "neo-prime" -- the industry's term for privately held, well-capitalized defense start-ups -- is Anduril, worth about $60 billion. That's about the same valuation as L3Harris Technologies. Anduril makes a lot of AI-fused hardware, too.
These start-ups are having a better time lately because investors believe they can capture growth in lower-cost autonomous battle systems.
Meanwhile, the aerospace half of the publicly traded aerospace and defense sector has fared much better. Shares of GE Aerospace were up 5% since the start of the war, heading into the week, above $359 -- despite trading below $275 in March. Higher oil prices initially sent shares of aerospace companies lower. But investors have given them a pass since oil prices retreated as the war dragged on.
Benchmark international oil prices were up almost 3% at $77.50 per barrel Monday. That's still down from post-Iran war highs of almost $120 per barrel.
The recent climb in GE Aerospace stock raises expectations heading into earnings, Mikus wrote. Investors will want to see solid results with guidance raised to keep stock momentum high.
As for Mikus, he likes the setup for RTX, which makes commercial jet engines as well as Patriot missiles, and for Boeing, Hexcel, and Howmet Aerospace. The latter three are more about the number of new jets being built by Boeing and Airbus. That number is expected to rise in 2026 and 2027.
Lockheed and Northrop were both down less than 1% in midday trading on Monday. The S&P 500 was off 0.4%.
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
July 13, 2026 13:13 ET (17:13 GMT)
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