Heavy Metal is Sinking
- Constantine J Kitrinos, CPFA
- 12 minutes ago
- 6 min read
Why in the world is "Heavy Metal" is Sinking While Cyber Soars in 2026?
If you opened a textbook on military conflicts and the stock market, the rules seem pretty straightforward: when a major geopolitical conflict breaks out (we have two currently going on), defense stocks go up. It's the classic "defense supercycle." Seems like an obvious trade on the surface and I've covered this specifically in multiple previous blogs and podcast episodes, but can we apply the same theory this time? Doesn't seem promising.
But if you’ve been watching the markets since the U.S. and Israel launched strikes against Iran on February 28, 2026, you might be scratching your head. You think to yourself, I know the rules, I'll stay disciplined, I'll follow the money. The recipe seems ripe for solid returns, but it's not always that easy or obvious. The global markets have been subjected to intense geopolitical whiplash, but counterintuitively, the world’s biggest aerospace and defense contractors are actually underperforming the broader market. Do you have a headache yet?
To understand why, we have to look past the fighter jets and aircraft carriers, and look at the new invisible frontlines of modern warfare. Let's face it, people and countries don't face off in quite the same way anymore. AI, autonomous drones, and cybersecurity do more of the heavy lifting than ever before and it will only continue to develop and change over time.
Here is the story of how the defense sector is splitting in two like my luggage when it's thrown down the carousel at JFK airport. The division itself will us where the smart money is actually rotating and if it has legs.
The "Heavy Metal" Hangover
When the conflict officially began, investors expected the big prime contractors—Lockheed Martin, Boeing, RTX Corp, and General Dynamics—to surge. So many times the market behaves just the opposite of what we've come to expect. Instead, we saw a classic "buy the rumor, sell the news" event.
Defense stocks had already rallied heavily in 2024 and 2025 due to global tensions so that didn't leave much meat on the bone. By the time the strikes occurred in early 2026, valuations were frothy and who wants to buy more froth when the risk just isn't worth the reward. But it wasn't just profit-taking that brought these giants down; it was a massive margin squeeze.
Traditional prime contractors are highly vulnerable to inflation because they are frequently bound to fixed-price government contracts. If you've ever worked with government projects before you know it typically comes down to price and not necessarily quality. With the current conflict causing significant disruptions in the Persian Gulf, oil prices and shipping insurance have spiked. If the cost of raw aerospace materials jumps, contractors have to eat those costs and it's a mouthful right now.
Let's look at the tape. Here is how the big traditional defense contractors have performed versus the Vanguard S&P 500 ETF (VOO) since the first trading day of the war (March 2) through today (April 6):
The Hardware Slump (Mar 2 - Apr 6, 2026)
Ticker | Company | Performance Since War Onset | vs. S&P 500 (VOO) |
GD | General Dynamics | -3.67% | Outperformed |
VOO | S&P 500 ETF | -4.06% | Benchmark |
LHX | L3Harris Technologies | -5.22% | Underperformed |
LMT | Lockheed Martin | -5.73% | Underperformed |
RTX | RTX Corporation | -6.48% | Underperformed |
BA | Boeing Co. | -7.59% | Underperformed |
NOC | Northrop Grumman | -9.40% | Underperformed |
With the exception of General Dynamics (which barely edged out the broader market), the heavy metal manufacturers are taking a beating. I have friends and family that have said it's so "easy" to read the market and mentioned they were going "heavy" into the aerospace and defense stocks at the onset of the war. Boy I hope they were half kidding about all of it. The market isn't always rational; heck, it's not rational almost all the time.
The Shift to "Defense-Tech"
If capital is fleeing the hardware giants, where is it going? Tech, cash, private credit you might wonder. The answer lies in the nature of this specific conflict.
This isn't a 20th-century ground war requiring a decade-long occupation, millions of small arms, and massive base-building. We've come a long way from using muzzle loaders, bows and arrows and weapons of mass destruction are doing more of the heavy lifting these days. This is an asymmetric conflict heavily reliant on targeted airstrikes, electronic warfare, drone suppression, and crippling enemy networks. The Pentagon isn't just buying platforms (jets); it's buying payloads and intelligence (software, sensors, and cyber).
Companies operating in the AI, data analytics, and unmanned autonomous sectors are thriving because they are immune to the supply chain issues hurting the primes. That has proved to be a massive advantage this time around. They sell software licenses, cloud security, and high-volume tactical drones—all of which scale beautifully.
Look at how the "Defense-Tech" cohort is performing across multiple timeframes, and notice how they are largely defying the current market gravity:
The Defense-Tech Rotation
Ticker | Company / Focus | 1-Year | 5-Year | Since War Onset |
AVAV | AeroVironment (Tactical Drones) | +85.4% | +245.8% | +4.85% |
CRWD | CrowdStrike (Cybersecurity) | +52.3% | +210.4% | +2.15% |
PLTR | Palantir Tech (AI/Data) | +64.2% | +185.3% | +1.90% |
BAH | Booz Allen Hamilton (IT/Cyber) | +15.5% | +58.6% | +1.05% |
LDOS | Leidos Holdings (Data Logistics) | +21.1% | +78.6% | +0.85% |
VOO | S&P 500 ETF | +12.8% | +65.4% | -4.06% |
The Standouts:
AeroVironment (AVAV): Up nearly 5% since the strikes began. Tactical "kamikaze" drones are high-volume, highly consumable assets the military constantly needs to replenish.
Palantir (PLTR) & CrowdStrike (CRWD): The undisputed leaders of the modern cyber and AI supercycle. While supply chains choke physical manufacturing, the demand for zero-trust cloud architecture and battlefield AI targeting is skyrocketing.
The Embraer Anomaly
No sector discussion is complete without looking at the outliers. Take Embraer S.A. (EMBJ), the Brazilian aerospace conglomerate.
If you zoom out to a 5-year window, EMBJ boasts astronomical returns of +540.0%, easily beating almost every defense prime on the market. But right now? It's down -5.20% since the war began.
Why? Because despite its excellent military transport aircraft, Embraer trades primarily on commercial aviation demand. Remember, it's more about the inflation, spike in oil and other costs that get swallowed by many of these types of companies. It is being weighed down by the exact same macroeconomic gravity that's hurting Boeing and Lockheed. It perfectly illustrates the divide: if your business relies on heavy physical manufacturing, 2026 is a tough environment, regardless of your past multi-year success. You can almost cut these two groups in half with a butter knife.
The Bottom Line
History tells us that defense stocks eventually surge during global conflicts, and if the U.S. enters a prolonged, multi-year hardware replenishment cycle, the traditional primes may bounce back. Of course there's no telling how long things will last. As of early April, there are some promising exchanges between Iran and the US, but that's the first step. It can't be all talk and no action.
But right now, the market is sending a clear message: the future of defense isn't just about who builds the strongest armor. It's about who builds the smartest networks. Think chips, processors, technology and anything that can make a countries defense mechanisms easier, cheaper or faster.
We will continue to monitor the troop buildups and diplomatic backchannels, providing any comprehensive updates that are meaningful as the military situation dictates.
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