One group of stocks is emerging as bright spot in tariff sell-off
Defense stocks are proving to be a rare source of outperformance as worries over tariffs derailing the economy ramp up. Markets were taken for a wild ride this week as President Donald Trump ratches up trade tensions with other countries. On Thursday, the S & P 500 fell 3.5% — after skyrocketing 9% on Wednesday in a historic session in which Trump announced a 90-day tariff pause for at least some countries. Still, the benchmark is down more than 5% since the White House announced the so-called reciprocal duties on April 2. But defense stocks have outperformed. Since the so-called liberation day announcement, Huntington Ingalls Industries has climbed around than 5%, along with Lockheed Martin and L3Harris Technologies . General Dynamics and RTX are up 0.2% and down 3%, respectively, in that time, however, they are still outpacing the broader market on a relative basis. The iShares U.S. Aerospace & Defense ETF (ITA) has lost nearly 4% since April 2. HII mountain 2025-04-02 HII since April 2 These stocks are inherently more hedged against the mounting global trade war, said Sheila Kahyaoglu, Jefferies aerospace and defense analyst. That’s due to the fact that most of these companies primarily operate domestically, helping them outperform in the midst of a tariff war. “Obviously, they don’t make anything outside the U.S. … So clearly they are not tariffed,” she told CNBC. Tony Bancroft, portfolio manager at Gabelli Funds, agreed with Kahyaoglu’s view. He noted that Boeing estimates that about 80% of its commercial business uses domestic goods. That rises to 90% for its defense unit. He added that U.S. businesses have dominated the lion’s share of the defense industry, meaning that other nations have little choice but to put up with Trump’s new tariffs. Rising political instability like ongoing tensions in the Middle East and Pacific Rim also typically fuel defense stocks. “All those moving parts together, you can sort of see why the defense industry is probably going to be relatively protected,” he added. Gordon Haskett head of event-driven research Don Bilson also pointed to the Trump administration’s recent budget proposal as a driver for defense stocks outperforming. “Credit for that measured and across-the-board rise is owed to the Trump Administration putting out the word that it plans to propose a FY26 Defense budget that tops $1 trillion,” Bilson wrote. “That would be a record and at least $100bn more than Congress authorized for this year.” Stocks to watch One name that Gordon Haskett’s Bilson highlighted that bears watching is shipbuilder Huntington Ingalls, which gained 16% in March. “Looking back, HII got a nice pop last month when President Trump mentioned it was time to ‘Make Shipbuilding Great Again,'” he wrote. “Trying to breathe life into a lifeless industry is easier said than done but a bigger Naval budget is good place to start and we’d imagine the double-digit jump in defense spending DoD will be asking for will have a soft spot for HII.” Morgan Stanley analyst Kristine Liwag identified Northrup Grumman as a stock she favors within the cohort. “Across our coverage, we favor OW-rated Northrop Grumman as we see a portfolio oriented around enduring DoD needs,” she wrote. “Upcoming potential catalysts include 1Q25 Prime earnings (week of April 21) and the official FY26 budget release.” Bernstein analyst Douglas Harned noted that Trump’s defense budget increase would be a positive for all defense stocks, but he specifically likes L3Harris. “Our preference remains for L3Harris, based on solid alignment with defense priorities, operational improvement beyond our prior expectations, and a relatively attractive valuation,” he wrote. Harned’s $267 price target for the stock implies a potential upside of 20% from its Friday close. Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!
