The war is not over, but the "military-industrial stock market bull market" in Europe and the United States has ended.

Since the outbreak of the US-Iran conflict, major global defense stocks have not risen but instead fallen, with investors reassessing the true profit prospects of the defense sector. Since the morning of February 28th local time, the US and Israel have launched military strikes against Iran for nearly two months, but major global defense stocks have not only failed to continue their upward trend, but have instead generally come under pressure and fallen. Analysis indicates that the current defense production capacity is limited, which means that order growth is difficult to quickly profits. There are also doubts among investors about whether the Trump administration's plans to significantly increase defense spending can be implemented. Major US defense stocks such as Lockheed Martin, Northrop Grumman, and RTX have all fallen since March. At the same time, nearly $1 billion has been withdrawn from the $14 billion iShares US Aerospace and Defense ETF, and has flowed into safe sectors such as energy and utilities. European defense stocks have also been sold off, with the MSCI Europe Aerospace and Defense Index falling 9.2% in March, marking the largest monthly decline in five years. Market logic is repeating history, "buy the rumor, sell the news" The current correction in the defense sector is highly consistent with market trends after multiple military conflicts in history. Melius Research analyst Scott Mikus defined this phenomenon as "buy the tension, sell the war," and pointed out that similar trends have occurred in the market after the 2022 Russia-Ukraine conflict and the 2003 US-led Iraq war. The stock prices of Lockheed Martin, Northrop Grumman, and RTX had all accumulated gains of about 50% in the year leading up to the outbreak of the conflict, benefiting from the Trump administration's proposed increase in defense spending last year, as well as ongoing unrest in Ukraine and the Middle East. However, as the conflict enters the actual combat phase, the stock prices of the first two companies have fallen by around 10% from their highs, and Lockheed Martin has also seen a decrease of around 5%. Steven Grey, Chief Investment Officer of Grey Value Management, said: The rate at which the US is consuming ammunition far exceeds the production rate. Defense companies may receive some funding in advance, but profits are usually confirmed only after delivery is completed. If delivery takes several years, how can stock prices continue to rise? Production bottlenecks and strong demand cannot hide the delivery dilemma The high-intensity consumption of military actions has made the market more aware of the core contradiction of production constraints. According to reports, the US military has consumed about 1,000 Tomahawk cruise missiles in the past two months, about 20 times the 58 missiles allocated in the US Navy's budget for the year. The urgent need to replenish stocks will further exacerbate the production backlog that major defense companies are already facing in response. Ron Epstein, defense and aerospace analyst at Bank of America, said: The revenue growth of these defense companies is not constrained by demand, but by production capacity. Both companies announced sales growth for the first quarter this week, citing strong demand for defense systems. Northrop Grumman CEO Kathy Warden said: The growth of our defense business is being driven by the sustained demand for solid rocket engines, smart munitions, conventional munitions, and tactical missiles. Scott Mikus pointed out that RTX's Raytheon Defense division is the manufacturer of Tomahawk missiles, and is expected to benefit from the Iran war and higher defense budgets, noting that missile procurement funding in the Pentagon's fiscal year 2027 budget request has increased by as much as 189%. Budget prospects are uncertain, $1.5 trillion plan difficult to implement In April, Trump proposed a 50% increase in the US defense budget to $1.5 trillion by 2027, but the market has reacted cautiously. Ron Epstein said: The $1.5 trillion budget has not been priced into the stock price because investors know that this plan still has a long way to go. This process itself is extremely unpredictable, and coupled with the upcoming midterm elections, there is even more uncertainty. Meanwhile, senior officials in the Trump administration, including Defense Secretary Pete Hegseth, have called for an increase in US defense spending while also harshly criticizing major contractors for delays and cost overruns in large projects, and promising comprehensive reform of the Pentagon's procurement mechanism. In addition, the government has recently held discussions on how to involve Detroit automakers such as General Motors and Ford in the weapons supply chain. The outstanding performance of Avic (Chengdu) Uas and autonomous missiles in the Iran conflict has also raised market speculation, worrying that major traditional contractors may lag behind in transitioning to new low-cost defense technologies. European defense stocks cooling off simultaneously The correction in European defense stocks is also significant, and is compounded by regional policy uncertainties. Shares of Czech weapons manufacturer CSG have fallen by nearly one-third since the outbreak of the conflict, while German companies Rheinmetall and Renk have dropped by about 10%, Sweden's Saab has fallen by about 12%, and French company Thales saw its stock price slide on Tuesday due to lower-than-expected performance outlook. Robert Stallard, analyst at Vertical Research Partners, believes that this sell-off "may be related to uncertainty related to the war, and the market is also concerned that defense spending has reached a cyclical high." He further pointed out: With a 50% annual increase in the US defense budget request and the backdrop of unexpected military conflicts, where is the upside? In Europe, the market periodically worries about what impact the implementation of a Ukraine peace agreement will have on regional defense spending trends especially for financially strained countries like France and the UK. This article is reprinted from Wall Street See; Author: Bao Yilong; GMTEight Editor: Wang Qiujia.