Aerospace and defense stocks were market leaders last year and that momentum carried over into the early stages of 2026. The group has delivered upside in January and February.
Along comes the war in Iran – an event that in theory should have sparked a rally for defense stocks. However, that hasn’t been the case. Members of the Dow Jones U.S. Select Aerospace & Defense Index succumbed to broader market weakness in March.
That pullback may provide aggressive traders with entry points to get involved with the Direxion Daily Aerospace & Defense Bull 3X Shares ETF (DFEN ), which is designed to deliver 300% of the daily returns of the widely followed Dow Jones U.S. Select Aerospace & Defense Index. Mulling over DFEN requires advisors to have perspective. This includes remembering it’s a short-term trading instrument, not a buy-and-hold ETF.
More DFEN Perspective
Another point to consider as it relates to DFEN’s potential utility as a near-term rebound candidate is that it’s not all that surprising that stocks haven’t jarred to the upside by the conflict in Iran.
“The moves make some sense. For starters, the stock market is forward-looking. It doesn’t care about now; it cares about what happens one year from now. A year ago, investors started to realize that geopolitical tensions were rising and defense spending was on the move. That benefited stocks,” reported Barron’s.
In other words, a variety of factors could propel DFEN and the stocks residing in the underlying index. However, don’t bet on the Iran war being one of them. Fortunately, finding potential sources of upside for defense stocks isn’t difficult.
There’s the obvious of conflict in the Middle East compelling some countries to up their defense budgets as a preventative measure – something that happened across Europe in the wake of Russia’s 2022 invasion of Ukraine. Related to defense expenditures, there’s chatter that U.S. weapons stockpiles are being depleted due to engagement in Iran. If that’s accurate, the U.S., already the world’s top defense spender, could enter a cycle of rearmament that could benefit members of DFEN’s index.
“At this point, sector stocks would need higher defense spending worldwide to keep rising. The good news, if it can be called good news, is that the outlook for spending remains strong. The U.S. is planning to increase inventories of key weapons, including missiles and drones. European nations are spending more as traditional alliances with the U.S. fray,” added Barron’s.
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