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Defense ETFs in Spotlight Ahead of Q3 Earnings Season
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Key Takeaways
Defense stocks fell nearly 19% from early August highs through Oct. 15, 2026, amid rising yields.
Aerospace sector is expected to report 11.8% earnings growth, supported by resilient demand.
Four defense ETFs offer diversified exposure, with assets ranging from $5.36 billion to $11.96 billion.
The U.S. defense sector faces an unusually turbulent third-quarter earnings season, a development rarely seen over the past decade. Caused by uncertainty over U.S. military spending ahead of November midterms, slowing airline traffic growth, and lingering supply-chain constraints, the S&P 1500 Aerospace and Defense Index fell nearly 19% from its early-August high through Oct. 15, 2026.
As the sector gears up for the third-quarter 2026 earnings next week, investors must be shifting focus from geopolitical headlines to hard balance sheets, particularly for stocks like Lockheed Martin (LMT - Free Report) and RTX Corp. (RTX - Free Report) , both scheduled to post results early next week.
This reporting cycle should serve as a critical stress test, revealing whether record-breaking backlogs from prior spending pledges are converting into meaningful bottom-line growth amid a skeptical market environment.
Factors Likely to Have Shaped Defense Stocks in Q3
Heading into third-quarter earnings, prominent defense stocks are caught between two opposing forces: robust spending commitments and a punishing interest-rate environment that has fundamentally altered how the market values growth.
The single most important factor has been the recent surge in U.S. Treasury yields, with the 10-year rate breaking above 5% for the first time since 2007. This has hit defense stocks harder than most sectors because their earnings are heavily weighted toward future backlogs.
This is because, despite delivering healthy revenue growth and backlogs, these defense stocks are now being valued at a higher cost of capital, thanks to sticky inflation and a higher interest rate environment.
Meanwhile, the geopolitical backdrop has been a double-edged sword. Escalation risks in Ukraine and the Middle East are real, but geopolitical headlines alone are no longer expected to boost defense stocks’ quarterly results. As the market has shifted from pricing the probability of conflict to pricing the execution of contracts and the cost of capital, close scrutiny will remain on the cash flow generation capacity of the prominent defense stocks this time.
Despite these valuation headwinds, several underlying factors are expected to have supported the sector's quarterly performance. Sustained NATO spending commitments, a steady flow of awarded contracts, and resilient demand for defense electronics and munitions should have translated into solid top-line growth. Diversified players with exposure to cybersecurity and sensor systems have likely benefited from AI-driven demand. These drivers, combined with cost discipline and favorable program mix, are expected to have offset some of the margin pressure from higher interest rates.
Defense Momentum Ahead of Q3 Results
As the third-quarter earnings season approaches, Defense ETFs might have benefited from the tailwinds highlighted earlier, potentially boosting quarterly results, despite the headwinds.
To this end, we focus on the Zacks Earnings Trend report, issued on Oct. 14, 2026. This shows that the Aerospace sector, housing the defense stocks, is expected to report earnings growth of 11.8% on 159.8% revenue growth. 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%.
Defense ETFs in Spotlight
With defense companies expected to report strong third-quarter results, investors may turn their attention to the following defense ETFs, which offer diversified exposure to prominent defense contractors.
This fund, with net assets worth $6.35 billion, offers exposure to 50 defense technology companies. Its top three holdings constitute major defense contractors: Palantir Technologies (PLTR - Free Report) (12.57%), RTX (9.07%) and LMT (8.57%).
SHLD charges 50 basis points (bps) in fees and traded at a volume of 0.90 million shares in the last trading session.
This fund, with net assets under management (AUM) worth $5.36 billion, includes 50 U.S.-listed aerospace and defense companies. Honeywell Aerospace holds the first spot in this fund, with 3.26% weight. LMT holds the third position with 3.14% weight, while RTX holds the 10th spot with 2.98% weight.
XAR charges 35 bps in fees and traded at a volume of 0.34 million shares in the last trading session.
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
This fund, with net assets worth $11.96 billion, includes 50 U.S. companies that manufacture commercial and military aircraft and other defense equipment. Its top holdings include GE Aerospace (GE - Free Report) , with a 20.96% weighting, followed by RTX at 16.31% and Lockheed Martin (in the fourth place) at 4.82%.
ITA charges 37 bps in fees and traded at a volume of 0.71 million shares in the last trading session.
This fund, with a market value worth $7.26 billion, includes 68 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. RTX holds the first position with 9.15% weight, while LMT holds the fourth spot with 8.29% weight.
PPA charges 58 bps in fees and traded at a volume of 0.38 million shares in the last trading session.
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Defense ETFs in Spotlight Ahead of Q3 Earnings Season
Key Takeaways
The U.S. defense sector faces an unusually turbulent third-quarter earnings season, a development rarely seen over the past decade. Caused by uncertainty over U.S. military spending ahead of November midterms, slowing airline traffic growth, and lingering supply-chain constraints, the S&P 1500 Aerospace and Defense Index fell nearly 19% from its early-August high through Oct. 15, 2026.
As the sector gears up for the third-quarter 2026 earnings next week, investors must be shifting focus from geopolitical headlines to hard balance sheets, particularly for stocks like Lockheed Martin (LMT - Free Report) and RTX Corp. (RTX - Free Report) , both scheduled to post results early next week.
This reporting cycle should serve as a critical stress test, revealing whether record-breaking backlogs from prior spending pledges are converting into meaningful bottom-line growth amid a skeptical market environment.
Factors Likely to Have Shaped Defense Stocks in Q3
Heading into third-quarter earnings, prominent defense stocks are caught between two opposing forces: robust spending commitments and a punishing interest-rate environment that has fundamentally altered how the market values growth.
The single most important factor has been the recent surge in U.S. Treasury yields, with the 10-year rate breaking above 5% for the first time since 2007. This has hit defense stocks harder than most sectors because their earnings are heavily weighted toward future backlogs.
This is because, despite delivering healthy revenue growth and backlogs, these defense stocks are now being valued at a higher cost of capital, thanks to sticky inflation and a higher interest rate environment.
Meanwhile, the geopolitical backdrop has been a double-edged sword. Escalation risks in Ukraine and the Middle East are real, but geopolitical headlines alone are no longer expected to boost defense stocks’ quarterly results. As the market has shifted from pricing the probability of conflict to pricing the execution of contracts and the cost of capital, close scrutiny will remain on the cash flow generation capacity of the prominent defense stocks this time.
Despite these valuation headwinds, several underlying factors are expected to have supported the sector's quarterly performance. Sustained NATO spending commitments, a steady flow of awarded contracts, and resilient demand for defense electronics and munitions should have translated into solid top-line growth. Diversified players with exposure to cybersecurity and sensor systems have likely benefited from AI-driven demand. These drivers, combined with cost discipline and favorable program mix, are expected to have offset some of the margin pressure from higher interest rates.
Defense Momentum Ahead of Q3 Results
As the third-quarter earnings season approaches, Defense ETFs might have benefited from the tailwinds highlighted earlier, potentially boosting quarterly results, despite the headwinds.
To this end, we focus on the Zacks Earnings Trend report, issued on Oct. 14, 2026. This shows that the Aerospace sector, housing the defense stocks, is expected to report earnings growth of 11.8% on 159.8% revenue growth. 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%.
Defense ETFs in Spotlight
With defense companies expected to report strong third-quarter results, investors may turn their attention to the following defense ETFs, which offer diversified exposure to prominent defense contractors.
Global X Defense Tech ETF (SHLD - Free Report)
This fund, with net assets worth $6.35 billion, offers exposure to 50 defense technology companies. Its top three holdings constitute major defense contractors: Palantir Technologies (PLTR - Free Report) (12.57%), RTX (9.07%) and LMT (8.57%).
SHLD charges 50 basis points (bps) in fees and traded at a volume of 0.90 million shares in the last trading session.
SPDR S&P Aerospace & Defense ETF (XAR - Free Report)
This fund, with net assets under management (AUM) worth $5.36 billion, includes 50 U.S.-listed aerospace and defense companies. Honeywell Aerospace holds the first spot in this fund, with 3.26% weight. LMT holds the third position with 3.14% weight, while RTX holds the 10th spot with 2.98% weight.
XAR charges 35 bps in fees and traded at a volume of 0.34 million shares in the last trading session.
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
This fund, with net assets worth $11.96 billion, includes 50 U.S. companies that manufacture commercial and military aircraft and other defense equipment. Its top holdings include GE Aerospace (GE - Free Report) , with a 20.96% weighting, followed by RTX at 16.31% and Lockheed Martin (in the fourth place) at 4.82%.
ITA charges 37 bps in fees and traded at a volume of 0.71 million shares in the last trading session.
Invesco Aerospace & Defense ETF (PPA - Free Report)
This fund, with a market value worth $7.26 billion, includes 68 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. RTX holds the first position with 9.15% weight, while LMT holds the fourth spot with 8.29% weight.
PPA charges 58 bps in fees and traded at a volume of 0.38 million shares in the last trading session.