--- title: "War Not Over, Yet European and US \"Defense Stock Bull Market\" Already Ends" type: "News" locale: "en" url: "https://longbridge.com/en/news/284096028.md" description: "Nearly two months after the outbreak of the US-Iran conflict, major global defense stocks have generally declined, following the pattern of \"buying expectations, selling reality.\" US defense giants such as Lockheed Martin and Northrop Grumman have retreated from their highs, with nearly $1 billion in funds fleeing defense ETFs; the European defense index recorded its largest monthly drop in five years in March. Analysts point out that the core contradiction lies in production bottlenecks constraining profit realization, while investors also harbor doubts about whether the Trump administration's plan to significantly increase the defense budget can be implemented" datetime: "2026-04-26T02:33:42.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/284096028.md) - [en](https://longbridge.com/en/news/284096028.md) - [zh-HK](https://longbridge.com/zh-HK/news/284096028.md) --- # War Not Over, Yet European and US "Defense Stock Bull Market" Already Ends Since the outbreak of the US-Iran conflict, major global defense stocks have fallen instead of rising, as investors are re-evaluating the true profit prospects of the defense sector. It has been nearly two months since local time on the morning of February 28, when the US and Israel launched military strikes against Iran, yet major global defense stocks have not only failed to sustain their upward trend but have generally come under pressure and retreated. **Analysts believe that current defense production capacity is constrained, meaning order growth cannot quickly translate into profits, and investors also harbor doubts about whether the Trump administration's plan to significantly increase the defense budget can be implemented.** Stock prices of major US defense companies including Lockheed Martin, Northrop Grumman, and RTX have all declined since March. Meanwhile, nearly $1 billion in funds have fled the ISHRS Aero & Def, which has a size of $14 billion, flowing instead into safe-haven sectors such as energy and utilities. **European defense stocks were also sold off; the MSCI Europe Aerospace & Defense Index fell 9.2% in March alone, marking the largest monthly decline in five years.** ## Market Logic Repeats History: "Buy Expectations, Sell Reality" The recent pullback in the defense sector aligns closely with market patterns observed after multiple historical military conflicts. Scott Mikus, an analyst at Melius Research, defines this phenomenon as "buy the tension, sell the war," noting that similar trends occurred after the 2022 Russia-Ukraine conflict and the 2003 US-led Iraq War. Stock prices of Lockheed Martin, Northrop Grumman, and RTX had all risen approximately 50% over the year prior to the outbreak of the conflict, benefiting from the Trump administration's proposed defense spending growth budget last year, as well as ongoing instability in Ukraine and the Middle East. However, once combat operations began, stock prices for the first two companies had already retreated approximately 10% from their peaks, with Lockheed Martin falling by around 5%. Steven Grey, Chief Investment Officer at Grey Value Management, stated: > **The US is consuming ammunition at a rate far exceeding production capabilities. Defense companies may receive partial funding in advance, but profits are typically recognized only upon delivery. If delivery takes several years, what justifies further stock price increases?** ## Production Bottlenecks: Strong Orders Cannot Mask Delivery Dilemmas **The high-intensity consumption of military operations has made the market more soberly aware of production constraints as the core contradiction.** Reports indicate that the US military consumed approximately 1,000 Tomahawk cruise missiles over the past two months, roughly 20 times the 58 missiles allocated in the US Navy's annual budget for this year. The urgent need to replenish inventories will further exacerbate the production backlogs that major defense firms are already managing. Ron Epstein, a defense and aerospace analyst at Bank of America, stated bluntly: > **Revenue growth for these defense companies will not be constrained by demand, but by production capacity.** Both companies announced sales growth for the first quarter this week, citing robust demand for defense systems. Kathy Warden, CEO of Northrop Grumman, added: > Our defense business growth is driven by sustained strong demand for solid rocket motors, smart munitions, conventional ammunition, and tactical missiles. Scott Mikus pointed out that Raytheon, a defense division of RTX, is the manufacturer of the Tomahawk missile and stands to benefit from the Iran war and higher defense budgets, noting that the Pentagon's budget request for fiscal year 2027 includes a 189% increase in funding for missile procurement. ## Budget Prospects Uncertain: $1.5 Trillion Plan Far From Guaranteed In April, Trump proposed raising the US defense budget by 50% to $1.5 trillion by 2027, but the market reacted cautiously. Ron Epstein stated: > The $1.5 trillion budget has not yet been priced into stocks because investors understand there is still a long way to go for this plan. This process itself is highly unpredictable, compounded by the upcoming midterm elections, increasing uncertainty. Meanwhile, senior officials in the Trump administration, including Defense Secretary **Pete Hegseth**, while calling for increased US defense spending, have also severely criticized delays and cost overruns in large contractor projects, promising comprehensive reform of the Pentagon's procurement mechanisms. Additionally, the government recently held special discussions on how to involve Detroit automakers such as General Motors and Ford in the weapons supply chain. The prominent performance of drones and autonomous missiles during the Iran conflict has also sparked market speculation, with concerns that large traditional contractors may fall behind in the transition to next-generation low-cost defense technologies. ## European Defense Stocks Cool Down Simultaneously The pullback in European defense stocks has been equally significant, compounded by region-specific policy uncertainties. Czech weapons manufacturer CSG has seen its stock price fall nearly one-third since the outbreak of the conflict, German firms Rheinmetall and Renk dropped by about 10%, Sweden's Saab fell by approximately 12%, and France's Thales also saw its stock price slide this Tuesday due to earnings guidance below expectations. Robert Stallard, an analyst at Vertical Research Partners, believes that **this round of selling "may be related to war-related uncertainties, with markets also worried that defense spending has reached a cyclical peak."** He further noted: > With the US Department of Defense budget application increasing by 50% annually, combined with unexpected military conflicts, where exactly is the upside potential? 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