We are Savers
U.S.

Defense ETF Fell Into Bear Market Territory

Investors in aerospace and defense funds have seen valuations drop 21% from peak levels amid political and geopolitical shifts.

Updated on Sept. 29, 2026 in Investing

Isometric editorial illustration of a heavy industrial turbine component on a plinth, symbolizing market decline in the aerospace and defense sector.
The State Street SPDR S&P Aerospace & Defense ETF dropped into bear market territory, falling 21% from its August peak amid stalled federal budget appropriations. AI Illustration. Upload story photo >

Live Poll

Is now a good time to invest in defense sector stocks, given their recent performance?

The State Street SPDR S&P Aerospace & Defense ETF has entered a bear market following a record-breaking seven-week losing streak. This decline marks the longest consecutive slide for the fund since its 2011 launch, leaving prices 21% below the August 14, 2026, high.

Why it matters

The downturn stems from stalled federal budget negotiations and reports of potential conflict de-escalation near the Strait of Hormuz, which have clouded the sector's growth outlook. These factors have pressured valuations across the defense industry, impacting investor sentiment.

The fund lost 8.7% in September, with 42 of its 50 holdings falling during the month. Shares now trade 21% below the August record high of $296.73, contributing to a 2.9% year-to-date loss for the ETF.

The players

State Street SPDR S&P Aerospace & Defense ETF

An investment fund that offers exposure to the aerospace and defense sector, currently experiencing a prolonged period of volatility.

United States House of Representatives

The legislative body currently in recess that holds responsibility for passing federal appropriations bills.

The details

The sector's volatility accelerated after Congress failed to pass appropriations bills, creating uncertainty regarding government defense spending. This policy stalemate, combined with market reactions to potential peace talks, triggered a broad sell-off across the 50 stocks within the portfolio. While the 2027 defense investment budget is projected to grow by 10%, the immediate lack of legislative progress has weighed heavily on current market pricing.

Timeline

  1. The fund launched in 2011.

  2. The fund reached a record high on August 14, 2026.

  3. Aerospace and defense shares fell broadly on September 22, 2026.

  4. Midterm elections occur on November 3, 2026.

  5. A stopgap funding bill expires on December 11, 2026.

Money Landscape

Defense sector volatility currently highlights a disconnect between long-term growth projections and short-term legislative uncertainty. The current downturn marks a departure from the 10% expansion expected in the 2027 defense investment budget.

Investors with exposure to defense sector funds should review their portfolio allocation in light of recent volatility and upcoming legislative deadlines. Consult a qualified financial professional to determine if these market shifts align with your long-term risk tolerance.

The takeaway

Market pricing for defense stocks remains sensitive to federal budget negotiations and election-cycle timing. Keep a close watch on legislative developments leading up to the December 11 stopgap funding expiration to understand potential long-term impacts on sector valuations.

What happens next

Midterm elections are scheduled for November 3, 2026, and the current stopgap funding bill expires on December 11, 2026.

Further reading

For more information on market volatility, visit the Investing section.

Source note: This article includes information reported by Benzinga.

Live Poll

Is now a good time to invest in defense sector stocks, given their recent performance?