Positive tariff news and some industry-specific speculation concerning future business helped light a rocket under defense stocks, sending the entire sector up.
AeroVironment (AVAV 1.91%) shares led the way up 14%, and shares of Lockheed Martin (LMT 0.72%), Northrop Grumman (NOC -1.79%), and Science Applications International (SAIC 2.00%) all climbed as high as 5% before fading some heading into market close.
New opportunities up ahead?
Defense stocks have held up relatively well through this period of uncertainty, supported by industry-specific news like progress toward the 2026 Pentagon budget. And while the industry is relatively insulated from tariff talk, there is some potential for supply chain costs to go higher.
The stocks got a boost on Wednesday thanks to market chatter that any tariff negotiations that try to address trade imbalances could include commitments by foreign allies to buy U.S.-made arms.
Earlier in the week, Vietnam Prime Minister Pham Minh Chinh suggested buying American defense and security equipment as a way to ease the impasse between the two countries. Lockheed's C-130 Hercules transport planes are among the systems often mentioned during discussions concerning Vietnam boosting ties with the U.S.
AeroVironment's move higher was fueled by some company-specific news. On Tuesday, the stock received a double upgrade to strong buy at Raymond James on the firm's view that the unmanned aerial vehicle (UAV) manufacturer has emerged as a clear winner from a class of "defense disruptors" who are reshaping the sector.
NASDAQ: AVAV
Key Data Points
Is it time to buy defense stocks?
There are still some reasons for concerns. Government IT specialists including SAIC still face the threat of contract cutbacks as the Department of Government Efficiency (DOGE) looks to streamline procurement. Talks are ongoing, but SAIC has warned of potential contract delays as the government reviews billions of dollars' worth of allocations.
More broadly, neither these trade deals nor the proposed budget is finalized. And even if it all plays out as planned, these allocations will take years to hit companies' bottom lines.
Defense stocks are an attractive option for investors seeking a mix of income and modest growth. But investors should not be rushing in to buy these based on a one-day surge.
