Defense ETF Has Entered Bear Market Territory

The State Street SPDR S&P Aerospace & Defense ETF has fallen 21% from its August peak following a seven-week losing streak.

Updated on Sept. 29, 2026 in Investing

Isometric editorial illustration of a heavy industrial container resting on a concrete pad, representing defense sector financial cooling. — The State Street SPDR S&P Aerospace & Defense ETF dropped 21% since August, entering a bear market amid stalled federal budget talks. AI Illustration. Upload story photo >

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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 after dropping 21% from its August 14 record high of $296.73. This seven-week decline represents the longest losing streak for the fund since its launch in 2011.

Why it matters

Stalled federal budget negotiations and reports of potential conflict de-escalation in the Middle East have pressured defense sector valuations. The absence of congressional appropriations bills has created significant market uncertainty for the industry.

The fund lost 8.1% during the week of August 17 and finished September down 8.7%. Across the 50 stocks in the XAR portfolio, 42 saw values decline during the month.

The players

State Street SPDR S&P Aerospace & Defense ETF

This investment fund tracks the performance of U.S. companies involved in the aerospace and defense sectors.

U.S. House of Representatives

The lower chamber of the United States Congress holds authority over federal budget appropriations and legislative spending.

The details

Investors have been selling shares in response to reports of potential peace talks involving the Strait of Hormuz, which suggests a cooling of regional geopolitical tensions. The sector faces further pressure as Congress remains in recess without passing necessary funding legislation.

The fund launched in 2011.
The fund reached a record high on August 14, 2026.
Shares fell broadly on September 22, 2026.
Midterm elections occur on November 3, 2026.
A stopgap funding bill is scheduled to expire on December 11, 2026.

Market Dynamics

The current downturn contrasts with long-term forecasts of a 10% increase in the 2027 defense investment budget. Market volatility reflects a cyclical shift as investors await the upcoming midterm elections to act as a clearing event for defense stock pricing.

Retail investors may see volatility in aerospace-heavy portfolios as the sector struggles with political uncertainty. Those monitoring long-term holdings should note that market sentiment remains tied to upcoming election results and federal funding developments.

The takeaway

Market volatility in the defense sector is currently driven more by legislative gridlock and regional peace talks than by underlying defense demand. Investors should distinguish between short-term political pressures and the industry-wide 2027 budget growth outlook.