The U.S. defense sector enters an unusually turbulent third-quarter earnings season, a development rarely seen over the past decade of relatively steady growth.
Uncertainty over U.S. military spending ahead of November midterms, slowing airline traffic growth, and persistent supply-chain constraints have weighed heavily on the industry.
The S&P 1500 Aerospace and Defense Index fell nearly 19% from its early-August high through October 15, 2026, reflecting the sector’s sharp deterioration.
Investors are now shifting focus from geopolitical headlines to hard balance sheets, particularly for stocks like Lockheed Martin (LMT) and RTX Corp. (RTX), both scheduled to post results early next week.
This reporting cycle is shaping up as a critical stress test, revealing whether record-breaking backlogs from prior spending pledges are converting into meaningful bottom-line growth.
The single most important factor heading into earnings has been the recent surge in U.S. Treasury yields, with the 10-year rate breaking above 5% for the first time since 2007.
Higher yields have hit defense stocks harder than most sectors because their earnings are heavily weighted toward future backlogs, raising the effective cost of capital on long-duration contracts.
The geopolitical backdrop has been a double-edged sword, with escalation risks in Ukraine and the Middle East failing to translate directly into improved quarterly results for major contractors.
Despite these headwinds, sustained NATO spending commitments, a steady flow of awarded contracts, and resilient demand for defense electronics and munitions are expected to have supported solid top-line growth.
According to the Zacks Earnings Trend report issued October 14, 2026, the Aerospace sector is expected to report earnings growth of 11.8% on 159.8% revenue growth for the quarter.
Total S&P 500 earnings for the July-September quarter are expected to increase 11.8% year over year, while revenues are projected to grow 24.6%, providing a broader market context for defense results.
With strong results anticipated, several defense-focused ETFs offer investors diversified exposure to the sector’s most prominent contractors heading into earnings week.
The Global X Defense Tech ETF (SHLD), carrying net assets of $6.35 billion, holds 50 defense technology companies, with top positions in Palantir Technologies (PLTR) at 12.57%, RTX at 9.07%, and LMT at 8.57%.
SHLD charges 50 basis points in fees and traded at a volume of 0.90 million shares in the last trading session, making it one of the more actively traded defense funds.
The SPDR S&P Aerospace and Defense ETF (XAR), with $5.36 billion in assets under management, includes 50 U.S.-listed aerospace and defense companies and charges 35 basis points in fees.
XAR’s top holdings include Honeywell Aerospace at 3.26%, LMT at 3.14%, and RTX at 2.98%, offering broad and relatively equal-weight exposure across the sector.
The iShares U.S. Aerospace and Defense ETF (ITA) is the largest of the group, with net assets worth $11.96 billion covering 50 U.S. companies that manufacture commercial and military aircraft and defense equipment.
ITA’s top holdings include GE Aerospace (GE) with a 20.96% weighting, followed by RTX at 16.31% and Lockheed Martin in fourth place at 4.82%, reflecting a more concentrated large-cap tilt.
The Invesco Aerospace and Defense ETF (PPA), with a market value of $7.26 billion, holds 68 companies involved in the development, manufacturing, and support of U.S. defense and aerospace operations.
PPA charges 58 basis points in fees, with RTX holding the top position at 9.15% and LMT occupying the fourth spot at 8.29%, giving it notable exposure to the two contractors reporting earliest next week.
