US defence stocks hold gains after Iran strikes, but rally cools amid spending uncertainty

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• US defence stocks outperformed after US-Israel strikes on Iran
• Lockheed Martin, RTX, Northrop Grumman saw mixed stock moves
• Policy uncertainty and capital limits hinder stock gains

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Shares of publicly traded US defence companies largely outperformed the broader market after the US and Israel carried out unprecedented strikes on Iran that sent global energy prices soaring, though the rally seen earlier this year has cooled.

Since February 26, defence stocks have largely held steady. Lockheed Martin fell 0.64 percent, RTX Corp (formerly Raytheon) rose 1.6 percent, Northrop Grumman gained 0.5 percent, and General Dynamics fell 0.3 percent. Boeing declined 12.3 percent after halting 737 MAX deliveries in March due to a machining error, while the S&P 500 Index fell 4.4 per cent over the same period.

The US and Israel launched coordinated attacks on Iran on February 28, triggering retaliatory strikes by Iran on US bases in West Asia and Israel.

The muted reaction since the war started contrasts with sharp gains earlier. From the start of 2026 to February 26, Lockheed Martin rose a massive 33 percent, Northrop Grumman gained 25 percent, RTX Corp advanced 8 percent, Boeing added 6 percent, and General Dynamics climbed 5 percent, while the S&P 500 Index rose 1 percent.

According to a Wall Street Journal report, the limited reaction in defence stocks despite the conflict reflects investor focus on policy uncertainty around defence spending and capital allocation. US President Donald Trump has proposed a $1.5 trillion defence budget for fiscal year 2027, though details remain unclear. The plan was expected to be supported by tariff revenues, which have since been struck down by the Supreme Court, while the administration has yet to submit its formal budget proposal.

The report also highlighted increased scrutiny on defence contractors’ capital allocation. Earlier this year, an executive order restricted companies from paying dividends or conducting share buybacks until they demonstrate timely and cost-efficient project execution. Companies have since raised capital expenditure plans and refrained from providing clarity on buybacks, which could weigh on earnings per share in the near term.