Analysis
On April 2, 2025, President Trump announced tariffs, and the world seems to stand still – no one knows what consequences this strategy will bring.
Certain industries have demonstrated resilience during times of crisis. At ADGREDIO, we apply a proprietary sector classification framework to assess market stability and long-term potential. This article is part of a dedicated analysis series focused on identifying structurally resilient sectors and uncovering key patterns that emerge in times of economic uncertainty.
ADGREDIO | Apr 10, 2025
Navigating Uncertain Times: A Look at Defense Stocks in Market Downturns
Challenging times in the markets are often accompanied by panic-driven reactions. While most investors understand that markets typically recover after a significant correction, not everyone has the ability—or the patience—to wait out a recovery period that can stretch over several years.
Media coverage during such periods can further amplify uncertainty, often leaning into sensational headlines that may distort the actual market dynamics.
Despite this, certain sectors are frequently cited as (supposedly) more resilient or better-performing during crises. One such sector is the defense industry.
Setting aside any specific investment strategy, we reviewed 29 companies within the defense space and analyzed their performance going back to 2005. We then compared these figures against the performance of their respective benchmark indices.
This article offers a brief look into that analysis. Additional sectors are also being examined, and key insights from those will be shared in upcoming reports.
The following securities and indices were included in the analysis:
Stocks
Airbus, Rheinmetall, Renk, Hensoldt, Thyssen Krupp, Lockheed Martin, Raytheon Technologies, Northrop Grumman, Boeing, General Dynamics, L3Harris Technologies, Huntington Ingalls Industries, Safran, Dassault Aviation, Thales, BAE Systems, Rolls Royce Holding, Qinetiq Group, Babcock International, Elbit Systems, Leonardo, Fincantieri, Indra Sistemas
Index
DAX, Dow Jones, CAC 40, FTSE 100, TA-35 Index, FTSE MIB, IBEX 35
As a starting point, we examined the historical trends and individual performance of each security (Fig. 1).
A clear pattern emerges: the stocks exhibit similar performance trends. The geopolitical developments of recent years—and the resulting increase in demand for defense-related equities—are clearly reflected in the data.
These effects become even more pronounced when looking at the performance of the stocks since 2005 (Fig. 2).
The selected companies span multiple countries, making the respective benchmark indices equally relevant. As expected, the indices have shown a positive trajectory since the onset of the COVID-19 pandemic (Fig. 3, Fig. 4).
In the next step, we compare the annual performance of individual stocks (Fig. 5) to identify potential outliers that meaningfully deviate from broader sector trends.
The analysis reveals no clear outlier that consistently deviates from the broader trend over an extended period.
Market disruptions in 2007 and 2020 are clearly visible. Overall, the stocks exhibit similar behavior, largely moving in tandem with broader market fluctuations.
This pattern is further confirmed when comparing the annual performance of individual stocks to that of their respective benchmark indices (Fig. 6).
Only a few cases show a divergence in performance direction.
Stocks that delivered positive returns despite broader market downturns would typically appear in the second quadrant. While some stocks fall into this category in isolated years, no single name consistently occupies that space over time.
In general, markets have trended positively in recent years, and defense stocks largely mirrored this broader movement. It is only in the more recent period—following the onset of the conflict in Ukraine—that a pronounced outperformance has become visible.
A breakdown of the individual stocks by country reveals a similar picture.
A comparison across countries (Fig. 14) also reveals no single nation that significantly deviates from the overall pattern.
Whether defense stocks are of interest ultimately depends on the underlying investment strategy.
Generally, market movements are heavily influenced by individual news events, as evidenced by the recent shifts in U.S. trade policy.
Some stocks are more sensitive to these changes than others.
Nonetheless, defense stocks—and the defense sector as a whole—represent an area of interest for the right investment strategy.
Given the ongoing demand for security and the current geopolitical landscape, it is reasonable to expect a positive outlook for the sector.
While capital gains may not be the only driver, a dividend strategy offers an alternative way to participate in the sector’s development.
This article is for educational purposes only and does not constitute investment advice. All investments carry inherent risks. Investments should be made at your own discretion, and ADGREDIO assumes no liability for any potential losses that may occur.