The ongoing government shutdown has led to market uncertainty, casting a shadow on U.S. defense stocks. However, some market analysts see a silver lining – a unique investment opportunity. U.S. companies that are significant suppliers for the military and other government sectors have been facing this short-term uncertainty throughout the shutdown. As a result, defense stock prices have been undervalued, reflected in the performance of the iShares U.S. Aerospace & Defense ETF (ITA) and Invesco Aerospace & Defense ETF (PPA). Both ETFs were largely excluded from the general market upsides last week, finishing nearly stable while the S&P 500 rose near 2%.
Analysts from Wall Street suggest this dip in defense shares might be an opportune moment for investment. Given the current lack of assurance around government funding, some entities may be reserved in their future predictions, which might be revised higher once the shutdown ends. Firms that primarily sell to the U.S. Army might present profitable investment opportunities, anticipating a scenario of mellow forecasts that could be later upgraded. Top firms, such as Northrop Grumman (NOC), which is due for an earnings report, could possibly set the tone for this trend.
Even as Northrop Grumman shares have seen a minimal fall since the shutdown started, they have witnessed a remarkable 28% increase in 2025, outdoing the S&P 500's nearly 15% rise during the same timeline. Analysts also sense potential in Lockheed Martin (LMT), RTX Corp. (RTX), GE Aerospace (GE), CACI (CACI), Boeing (BA), and L3Harris (LHX).
On a positive note, Northrop Grumman, RTX, and other shares saw a rise in the recent market rally. Kevin Hassett, the White House Economic Advisor, in a conversation with CNBC, expressed his belief for the shutdown to likely conclude this week. Bettors on Polymarket are cautiously optimistic about the shutdown ending between Thursday and Sunday.