Defense Stocks Hit Key Support After Brutal First Half

The first half of the year delivered a surprise for defense-sector bulls. Traditional aerospace and defense names underperformed badly despite the Iran conflict, a war that intuitively should have boosted them. The sector has now pulled back to a technical support level that has held multiple times over the past three years.

Global defense stocks, as measured by the SHLD ETF, fell roughly 12% from their January peak through June. That put the fund at a level that previously marked the bottom of the 2022 correction and the 2023 consolidation range. The support zone sits near $58, a line that has triggered buying from institutional accounts on each of the last three touches.

The underperformance stemmed from a rotation out of defense and into energy and materials as the Iran conflict drove oil prices higher. Investors also priced in a longer timeline for the conflict, reducing the urgency premium that defense names typically carry at the start of a new war. The initial spike in January faded as it became clear the fighting would not produce the kind of rapid, high-intensity munitions consumption that drove the 2022-2023 cycle.

That dynamic may now be shifting. The support level has held for four consecutive weeks, and volume has picked up on the bounces. Options flow shows a notable increase in call buying at the $60 and $62 strikes for August expiration, a pattern that preceded the last two rallies off this zone.