Missiles are flying, budgets are booming, but the usual beneficiaries are stuck in first gear. The Iran War’s first four days drained ~$11B in munitions, while Trump floated a record $1.5T defense budget for 2027, yet Big Defense stocks sit flat. After a two-year rally to near-historic valuations, investors see mounting risk as modern warfare evolves rapidly.
- Since Feb. 28, the “Five Primes,” Lockheed, Northrop, General Dynamics, Boeing, and RTX, have slipped ~1% on average.
- Markets are fixated on tighter oversight, curbs on buybacks and dividends, and creeping costs — all squeezing EPS and undermining rich valuations.
Follow the drones: While the primes stall, spending on space, AI, and drones is growing over 20% within the 2026 budget — and smaller defense tech names are cashing in. State Street’s Aerospace & Defense ETF, tilted toward nimbler players, has climbed 67% over the past year vs. 53% for the iShares’ variant, which leans toward the big five. The Iran war is accelerating the shift of how multimillion-dollar missiles to intercept drones costing tens of thousands is a losing equation. The longer this conflict runs, the more Pentagon dollars will chase cheaper, smarter contractors.
