Defense stocks retreat as Trump postpones Iran energy strikes
De-escalation pressures missile makers after sector's 30% year-to-date rally on geopolitical tensions
Lockheed Martin and Raytheon Technologies shares declined in Monday trading after President Donald Trump ordered a five-day postponement of military strikes against Iranian energy infrastructure, reversing the escalation narrative that has fueled defense sector gains throughout March.
Lockheed Martin fell 1.6% to $627.43, while Raytheon dropped 1.3% to $198.16, eroding some of the sector's 30% advance this year. The companies had reached record highs earlier in March when Lockheed climbed 3.2% to $675.81 and Raytheon surged 6.5% to $212.16 following initial U.S. and Israeli operations targeting Iranian facilities.
The postponement announcement comes as defense stocks face growing questions about valuations following their substantial rally since mid-2024. Analysts have cautioned that much of the anticipated upside from geopolitical conflicts may already be priced into shares, particularly as investor sentiment cools amid defense spending uncertainty.
"The market reaction reflects concerns that de-escalation could diminish near-term demand for missile systems and military assets," according to defense sector analysts who track the impact of Middle East tensions on contractors. "The postponement creates uncertainty about the pace of future munitions procurement and restocking needs."
Both companies remain well above analyst price targets, with Lockheed currently trading at a 29.2 price-to-earnings ratio and Raytheon at 40.0 times earnings. Bernstein analysts have highlighted the need for tactical missile restocking as a potential long-term driver, though the immediate focus has shifted to whether the conflict will escalate further or stabilize.
The broader defense sector has benefited from what some analysts call a "defense spending supercycle" driven by global geopolitical instability. However, the sector's performance has become increasingly dependent on conflict duration and intensity, with recent volatility demonstrating how quickly sentiment can reverse based on geopolitical developments.
Institutional investors hold approximately 75% of Lockheed's shares and 81% of Raytheon's, suggesting that major portfolio managers are closely monitoring the situation. Both companies pay quarterly dividends, with Lockheed offering a 2.1% yield and Raytheon at 1.3%, providing some income support during periods of price volatility.