The conflict involving the U.S. and Iran has persisted into a second month, yet defense sector equities have not shown the kind of gains some investors might anticipate from active military operations. Bernstein analysts, led by Douglas Harned, argue that the usual linkage between warfare and defense-stock outperformance - higher tangible defense spending - is not clearly present in the current situation.
Market moves to date
Since the onset of the conflict, defense names broadly have retreated roughly in step with the wider market, while commercial aerospace stocks have borne the brunt of the selloff, with many names down an estimated 10% to 20%.
Where the demand is real: missile restocking
The primary, measurable benefit from the recent operations has come in the form of ordnance depletion and subsequent replenishment. Large volumes of Tomahawks, tactical missiles, and interceptors have been expended in strikes connected to the conflict. Tomahawk usage alone is now estimated at roughly 850 units, the largest employment of that missile to date.
That restocking requirement most directly advantages specific prime contractors. Bernstein highlights RTX, Lockheed Martin, L3Harris, and Northrop Grumman as the firms likely to see the clearest increases in demand as inventories are rebuilt. Although U.S. missile usage has declined after initial strikes - with a tactical shift toward cheaper gravity munitions as Iranian air defenses were largely neutralized - the analysts stress that a "substantial restocking" effort remains necessary and should sustain higher production rates for an extended period.
Key uncertainty: duration of elevated production
Bernstein cautions that the central unknown is how long manufacturing ramps will need to be sustained. Many suppliers were already accelerating production before the conflict began, so it is unclear how much additional incremental capacity will be required and for what duration.
On a broader budgeting front, the analysts note that a successful resolution that diminishes Iran as a threat could, conversely, lower the impetus for future defense spending in both the United States and the Middle East. They point out that expectations for an ambitious U.S. defense budget - the Trump administration had previously signaled interest in a $1.5 trillion 2027 figure - contrast with current market pricing, which Bernstein estimates closer to $1.1 to $1.2 trillion.
Given those dynamics, Bernstein warns investors not to count on the present conflict to generate a broad upside for defense-sector equities unless the situation escalates - for example through the deployment of ground forces, direct involvement by other major powers, or the opening of an additional theater such as China-Taiwan.
Commercial aerospace: demand-supply nuance and aftermarket risk
Bernstein separates the fundamentals for OEM aircraft manufacturers from parts and maintenance providers. The analysts see limited fundamental downside for Airbus and Boeing, arguing that demand for new aircraft outstrips supply through the rest of the decade.
More exposed are engine original equipment manufacturers and maintenance, repair and overhaul (MRO) providers. GE Aerospace, Safran, Rolls-Royce, MTU, and StandardAero have each traded down more than 15% since the conflict began, according to Bernstein's note. A key vulnerability is the rise in jet fuel prices - globally more than double 2025 levels - which, if sustained alongside macroeconomic weakness, could prompt airlines to ground older jets and defer shop visits, eroding aftermarket revenue for MRO businesses.
Bernstein tempers that risk by noting a sizable backlog of shop work, which should provide a buffer. The analysts expect any material impact on MRO activity to be delayed by at least nine months due to that pipeline.
Bottom line
Bernstein's assessment is that, for now, the market's reaction is consistent with a conflict that creates some pockets of demand - notably missile replenishment for specific primes - but does not yet translate into the sustained, economy-wide defense spending increases that would lift the entire sector. Absent a wider or prolonged escalation, investors should not expect broad upside from the present hostilities.