What If You Invested in Defense Stocks When the Iran Conflict Started?
On February 28, 2026, the U.S. and Israel launched joint strikes on Iran targeting nuclear sites, missile infrastructure, and IRGC command structures. Defense stocks surged immediately. Then, over the following months, the entire rally unwound.
Defense Stocks vs. the S&P 500 in 2026
This is the update the original conflict-trade headlines never get. As of the latest monthly close, the S&P 500 has returned +10.1% year-to-date while every major defense name trails it. The names that spiked on the strikes gave the surge back as the conflict premium faded and the broader market recovered.
| Stock | 2026 YTD | Key System |
|---|---|---|
| Lockheed Martin (LMT) | +6.7% | THAAD missile defense |
| RTX Corporation (RTX) | +4.2% | Patriot radar systems |
| Northrop Grumman (NOC) | -10.0% | B-2 Stealth Bomber |
| AeroVironment (AVAV) | -31.8% | Switchblade drones |
| S&P 500 (SPY) | +10.1% | The broad market |
On the first trading days after the strikes, defense stocks did surge to record highs. Northrop jumped 6% in a single session, RTX rose 4.7%, Lockheed gained 3.4%. But that spike was the top. Lockheed has held up best of the group at +6.7% on the year; AeroVironment has been the worst at -31.8%.
The Bull Case Was Real - and It Still Wasn't Enough
The fundamental story behind the spike never went away:
The $1.01 trillion defense budget. President Trump proposed the first-ever trillion-dollar defense budget for fiscal year 2026 - a 13% increase. The base defense request is $892.6 billion, plus $119.3 billion in additional spending.
Active combat driving procurement. Lockheed signed a deal with the Pentagon in January to quadruple THAAD interceptor production from 96 to 400 per year. RTX's Patriot systems are being used across the conflict. Northrop's B-2 bombers were deployed in the initial strikes.
A proposed FY2027 budget near $1.5 trillion. The Iran conflict has made defense spending less politically controversial and more urgent.
And yet the stocks fell anyway. The market had already priced the conflict in within days of the strikes, valuations got stretched, and as the immediate war premium faded the names drifted back down even as the budget headlines stayed bullish. It is a textbook example of "buy the rumor, sell the news," and a reminder that a strong story is not the same as a cheap stock.
The AeroVironment Wild Card
On March 2, AVAV initially surged over 20% in pre-market on the Iran news. Their Switchblade loitering munitions - small drones that cost $70,000-$100,000 and can destroy a $2 million missile launcher - were seen as exactly the kind of weapon a prolonged conflict would demand.
Then the Pentagon announced it was reopening bidding on the $1.4 billion SCAR satellite communications contract. The stock reversed and finished down nearly 20%. One contract setback erased months of conflict-driven gains. That's the risk with smaller defense names.
What $10,000 Would Be Worth
If you invested $10,000 on January 1, 2026 and held to the latest monthly close:
| Investment | Value Today |
|---|---|
| S&P 500 (SPY) | ~$11,013 |
| RTX Corporation (RTX) | ~$10,423 |
| Lockheed Martin (LMT) | ~$10,669 |
The Bottom Line
Defense stocks spiked hard when the Iran conflict began, and for a few weeks the "war trade" looked unbeatable. Then it reversed. As of the latest monthly close the major defense names all trail the S&P 500's +10.1% on the year. Record budgets and active procurement made the story compelling, but the stocks had already run, and the conflict premium did not last. Geopolitical fear is one of the least reliable ways to time a trade.
Try the calculator to see what your investment in Lockheed Martin, RTX, or Northrop Grumman would be worth today. Or browse all industrial & defense stocks.