XAR SPDR S&P Aerospace & Defense ETF

Defense Stocks hit bear market - $XAR lower for 6 straight weeks - longest losing streak since inception - down -21.67% down from high on Aug 14 $GD down -17.07% from 52-week high $RTX down -17.5% from 52-week high $LMT down -25.72% from 52-week high $NOC down -34.78% from 52-week high Defense prime valuations have compressed from a +15% fwd P/E premium to the S&P 500 in 1Q26 (driven by the White House's unprecedented $1.5T FY27 defense budget proposal) to a ~12% discount today Near-term multiple compression stems from legislative gridlock: Congress passed a Continuing Resolution (CR) running thru Dec 11, 2026, which freezes defense outlays at existing FY26 levels & denies new multi-year procurement authorizations. However, a structural disconnect persists between public equity valuations & fundamental long-term demand Multi-year rearmament dynamics—driven by depleted NATO stockpile replenishment, US fleet modernization, & expanding defense budgets across key allies—provide high revenue visibility & record prime backlogs that counter short-term fiscal delays: - NATO & Europe: Shift toward 2.5%–3.5% GDP spending targets to accelerate inventory rebuilding & long-range fires - Asia-Pac: Surging defense outlays led by Japan’s historic push toward 2% of GDP, Taiwan’s heightened asymmetric procurement, & South Korea's expanded production capacity. Australia is accelerating long-term national defense investments tied to AUKUS Pillar I/II commitments, long-range strike capabilities, & sovereign munitions manufacturing Additionally, replenishment demands from ongoing high-intensity operations in Eastern Europe & the Middle East continue to consume munitions faster than industrial capacity can produce Record prime backlogs should counter short-term fiscal delays Total Backlog: RTX: $289B (+22% y/y) LMT: $230.4B (+38% y/y) GD: $136.5B (+31.7% y/y) NOC: $104.7B (+16.7% y/y