Key Points
- Major US defense contractors have fallen an average of 25% since late February, according to Barron's.
- The S&P 500 advanced 13% over the same stretch, widening the gap with defense names.
- Analysts cite midterm election fears and a Pentagon contracting memo as drivers of investor caution.
The latest:
Shares of major US defense contractors have dropped an average of 25% since the start of the Iran war in late February, Barron’s reported, even as the S&P 500 rose 13% over the same period. Drone technology names fared far worse, down an average of 48%. The weakness has persisted despite fresh buy-side interest in the sector.
Details:
- The prime contractors: Lockheed Martin, Northrop Grumman, L3Harris Technologies and General Dynamics were down an average of 25% heading into Wednesday trading, measured from the late-February start of the Iran war, according to Barron’s. The S&P 500 gained 13% across the same window, leaving the primes roughly 38 percentage points behind the broad market.
- The drone names: Kratos Defense & Security Solutions, Karman and AeroVironment fell an average of 48% over the same period, nearly double the decline of the large prime contractors, Barron’s reported. On Wednesday, Kratos was off 2.53% and AeroVironment 5.14%, extending the underperformance rather than reversing it.
- Mixed-business exposure: Boeing and RTX, which both carry large commercial aerospace operations alongside defense work, declined 18% and 10% respectively, Barron’s reported — notably shallower losses than the pure-play defense names. Boeing slipped a further 0.98% on Wednesday, while the S&P 500 itself was down 1.11%.
- The analyst case: Analysts point to two explanations for the sector’s weakness, according to Barron’s: fears of a Democratic sweep in the midterm elections, and a Pentagon memo proposing changes to contract terms. Neither has yet produced a confirmed policy change to defense procurement.
- An upgrade: Rob Stallard, analyst at Vertical Research Partners, upgraded Lockheed Martin to Buy from Hold on Wednesday, Barron’s reported. Lockheed shares rose 3.61% on the day, the only gain among the defense names cited, though the move followed months of underperformance.
- The writer’s read: Barron’s columnist Al Root argued investors should set aside the so-called Blue Wave explanation, assessing that the selling reflects exhaustion with policy chaos rather than a single political catalyst. That framing is the author’s own assessment, not a quantified finding.
- What’s not specified: The report did not attach a price target to Stallard’s Lockheed Martin upgrade, name the Pentagon memo or date it, or specify which contract terms the proposal would alter. No timeline was given for when the proposed changes might take effect.
Between the lines:
The split between the primes, down 25%, and the drone names, down 48%, suggests the selling is weighted toward smaller, higher-multiple suppliers rather than spread evenly. Boeing and RTX, cushioned by commercial aerospace, lost the least — consistent with investors discounting defense-specific exposure rather than aerospace broadly. Stallard’s Lockheed upgrade signals at least some analyst conviction that the repricing has gone far enough.
What’s next
Watch the midterm election results for confirmation or removal of the Democratic sweep scenario, the Pentagon’s follow-through on the proposed contract changes, and whether other analysts join Vertical Research in upgrading the primes.
