Defense Stocks Rally as US-Iran Tensions and Budget Talks Rise
Shares of Lockheed Martin, Northrop Grumman, and RTX climbed this week as investors priced in heightened geopolitical risk and potential for a significant defense budget increase.
The defense sector is back in the spotlight on Wall Street, as a combination of escalating U.S.-Iran tensions and renewed conversations around a larger military budget sent shares of major contractors sharply higher this week.
Investors are recalibrating for heightened geopolitical risk in the Middle East, a dynamic that historically benefits companies integral to national security. The market reaction was swift, with stocks of the largest U.S. defense contractors outperforming the broader market. Lockheed Martin (LMT) saw its shares surge, gaining 4.72% on Friday to close at $542.92, capping a strong week. Northrop Grumman (NOC) shares experienced an even more dramatic move, jumping nearly 10% on Thursday. Meanwhile, RTX Corp. (RTX), formerly Raytheon, has also been a beneficiary of the sentiment shift, with its stock touching an all-time high earlier in the week.
The primary catalyst appears to be a dual threat of renewed friction with Iran and the prospect of greater military expenditures. Tensions between Washington and Tehran have been a focal point for investors, with recent rhetoric and regional developments suggesting a more confrontational posture. This follows reports that the White House is considering its strategic options regarding Iran, reviving memories of past flare-ups that have preceded boosts in defense spending.
Fueling the rally further was President Trump's proposal on Thursday to increase the fiscal year 2027 defense budget to approximately $1.5 trillion. The figure, a substantial increase over prior years, signaled to investors that a new era of defense spending could be on the horizon. A budget of that magnitude would translate into significant new and accelerated contracts for everything from missile systems and fighter jets to advanced cybersecurity and surveillance technology.
"Whenever there is a clear and present rise in global instability, capital tends to flow into the perceived safety and necessity of the defense industry," noted one sector analyst. "The market is reacting to future possibilities. A larger budget, coupled with an active threat environment, creates a powerful tailwind for these stocks."
Lockheed Martin, the maker of the F-35 fighter jet, saw its stock jump over 8% in pre-market trading Thursday following the budget proposal news before settling into its subsequent gains. The move reflects investor expectation that the company's flagship programs would see significant funding. Similarly, the surge in Northrop Grumman, a key player in strategic bombers and space systems, indicates a belief that large-scale, long-term modernization projects will be a priority.
Looking ahead, market participants will be closely monitoring any official budget requests and foreign policy announcements. While the tensions have provided a near-term lift for the sector, the sustainability of the rally will depend on concrete policy and budgetary outcomes. For now, the defense industry serves as a clear barometer of the market's assessment of global risk.