This Year's Defense-Stock Rally Has Largely Stalled Amid the Fighting in the Middle East

Key Takeaways

• Several major companies in the defense sector were generally lower on Monday even as tensions in the Middle East remain high.
• An exception: Aureus Greenway, a golf course operator, is surging following announced plans to merge with a drone company.

Defense stocks aren’t rising despite all the fighting.

That would seem counterintuitive—a bit like how gold prices haven’t behaved the way investors expected—given that companies of that ilk seem more relevant when geopolitical tensions are running high. And yet the iShares U.S. Aerospace & Defense ETF (ITA) as well as the State Street SPDR S&P Aerospace & Defense ETF (XAR), which hold stocks of companies that make defense equipment, are flat to down since the U.S.'s initial strikes on Iran.

And investors lately have been panning crowded trades, favoring value over momentum. There are exceptions: A golf course operator called Aureus Greenway Holdings (AGH) closed more than 12% higher today after news that it would merge with a drone startup in a deal backed by President Donald Trump’s sons.

WHY THIS MATTERS TO YOU

Like gold, defense stocks are usually thought to be beneficiaries of geopolitical strife, yet the two momentum trades don’t appear to be working lately after investors crowded into them last year.

RTX (RTX), formerly Raytheon, Lockheed Martin (LMT), Northrop Grumman (NOC), General Dynamics (GD) all closed lower on Monday. What gives? One explanation: Defense stocks, like gold, have been a hot trade, especially in the last year, and have outperformed broad market indexes in 2026.

Investors poured more dollars into the the iShares U.S. Aerospace & Defense ETF last year than in any other year since 2020 driving assets under management to more than $16 billion, Fundstrat’s Hardika Singh said in a recent note.

Related Education

The Impact of War on the Stock Markets—What Investors Need To Know

Are Investors Prepared for ‘More Violent and Frequent Shocks’ This Year?

There’s also history to consider. Though the U.S.'s spending on defense as a percentage of GDP in past conflicts like the Cold War and Vietnam were high, it did little to boost the defense sector, in part because those companies tend to operate on multiyear cycles, according to Singh; Even if defense stocks historically enjoyed a boost on the outbreak of wars, their advances weren’t sustained. And when a war ends, Singh wrote, governments tend to renegotiate contracts.

Investors on Monday bid up shares of Aureus after it announced a deal with a Florida-based drone startup called Powerus. Investors in the deal include American Ventures Partners, a firm backed by Eric Trump and Donald Trump Jr., as well as drone parts manufacturer Unusual Machines (UMAC), which in 2024 appointed Don Jr. to its advisory board. Following the completion of the reverse merger, the company will operate under the name Powerus.

Do you have a news tip for Investopedia reporters? Please email us at

[email protected]