Shutdown Could Be Buying Opportunity for Defense Stocks, Analysts Say

As the US government shutdown enters its fourth week, defense stocks have lagged behind broader market gains — but Wall Street analysts see that as a potential opportunity.

The iShares U.S. Aerospace & Defense ETF (ITA) and Invesco Aerospace & Defense ETF (PPA) have stayed mostly flat this month, even as the S&P 500 climbed nearly 2%. Both ETFs remain below early October highs, reflecting investor caution amid uncertainty over government funding.

Analysts at Morgan Stanley argue that the weakness could present a buying window, predicting that once the shutdown ends, defense companies may issue upward revisions to muted near-term outlooks. “We’d be buyers of tepid Defense outlooks as upward revisions should materialize as the funding picture clears up,” the firm wrote in a client note.

Among top picks are Northrop Grumman (NOC), Lockheed Martin (LMT), RTX Corp. (RTX), and GE Aerospace (GE) — all set to report earnings this week. Northrop’s stock, down about 1% since the shutdown began but up 28% year-to-date, remains a standout. Morgan Stanley has a $720 price target for the stock, implying roughly 20% upside from Monday’s close at $602.

Meanwhile, White House Economic Advisor Kevin Hassett told CNBC that he expects the shutdown “is likely to end sometime this week.” Betting platform Polymarket data also shows traders see a resolution between Thursday and Sunday as most likely.

For now, defense investors are waiting on Washington — but analysts suggest that when clarity returns, so could momentum for the sector.

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