Losses are accelerating as the S&P 500 (SPY) has, as of this writing, fallen 8% since the July 16th high. That move has occurred on a rotation out of former market leaders like the mega caps as markets contend with a number of factors ranging from recession fears to rising geopolitical tensions abroad. While breadth has been rough in that time, it hasn't been a total wash with roughly a third of the index having risen since July 16th.On a sector level, the groups with the largest share of stocks rising since 7/16 come from defensive sectors like Utilities (83.9%), Consumer Staples (63%), Real Estate (61%), and Health Care (57%).

What is impressive is that in looking only at the S&P 500's 20 best-performing stocks since the 7/16 high, the two sectors with the largest representation are Health Care and Industrials. However, looking more closely, a number of those Industrial stocks are also in the Aerospace & Defense industry with stocks like Lockheed Martin (LMT), Northrop Grumman (NOC), and RTX (RTX) all posting double-digit gains.

As a result, the S&P 500 Aerospace and Defense Industry index has risen 1.4% since the July 16th high compared to the high single-digit percentage decline in the broader market. Looking at the 14-trading day performance spread of the industry and the broader market, that 9.5 percentage point difference is a 99th percentile reading dating back to 1990. While not every spike in this spread is due to geopolitical tensions (for example in the spring of 2020 it surged as equities recovered from the Covid Crash), this spread has tended to rise sharply around tense periods for geopolitics. This current spike surpasses that from when Hamas attacked Israel on October 7th and is now the most elevated reading since November 2022 (North Korea missile launches and Russia/Ukraine war was underway) and when Russia invaded Ukraine in early 2022 before that. Prior to 2020, the only other time defense stocks outperformed the S&P 500 by such a wide margin was in the late 19990s and early 2000s. More specifically, the current reading would be the highest since February 2002 in the early days of the War on Terror when these companies began to receive large contracts from the US government.

While the industry as a whole has outperformed the S&P 500 by a decent margin, under the hood it actually hasn't seen the best breadth. Of the dozen stocks belonging to the industry, just four defense names are higher since 7/16, and each one has earnings to thank. As shown in the charts below, those four stocks all rose sharply in late July in the wake of their latest earnings reports. Impressively, the reaction to earnings for Northrop Grumman (NOC) and RTX (RTX) were both the best on record for their respective earnings histories based on data from our Earnings Explorer tool. Howmet Aerospace's (HWM) gain after reporting the most recent quarter also ranks highly as their third-best reaction on record, however, it has not been immune from selling over the past few sessions meaning that gap has since nearly been filled. Lockheed Martin's (LMT) saw its sixth-best reaction to date. In other words, while some are arguing that the defense group is up due to geopolitics, it has really been a few strong reactions to Q2 earnings reports.

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