US Aerospace & Defense: Chart of the Day: Reiterating Defense Stocks Likely To Keep ‘Smiling‘

Research evidence excerpt

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14 Aug 2026 14:09:29 ET │ 9 pages

US Aerospace & Defense

Chart of the Day: Reiterating Defense Stocks Likely To Keep 'Smiling'

CITI'S TAKE

We recently highlighted the ‘Mid-term Election Smile’ in our 2Q26

quarterly review and update (here). We understand investors' concerns

regarding political risk events, particularly since risks like government

shutdowns have occurred more frequently over the past 15 years than

during the preceding 15-years. However, at this point, a clear pattern has

emerged around mid-term elections where defense stocks sell off in the

spring only to rally in the fall – a pattern which we call the ‘Mid-term

Election Smile.’ This year, very much on-pattern, defense stocks saw

pressure in the spring reach a peak only to rebound sharply on 2Q26 EPS

results, for the most part. Today, we believe there is more to go – in other

words, defense stocks are likely to keep ‘smiling’. We also hope investors

find comfort in the fact that any analysis of long-term budget trends

immediately reveals defense budget growth is not dependent on political

party.

John GodynAC

Bradley Eyster

Jeremy E Jason