LIVE MARKETS-Defense ETF nears bear-market territory 

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DEFENSE ETF NEARS BEAR-MARKET TERRITORY

The outlook for US defense spending has rarely looked brighter. Ongoing global conflicts, rising security concerns and bipartisan support for military investment have reinforced expectations that Pentagon budgets will continue to grow.

Yet defense stocks have been heading in the opposite direction.

According to Bernstein, the issue isn't demand. It's uncertainty. The firm finds that investors are increasingly frustrated by Congress' inability to provide budget clarity. While the Pentagon is pushing for substantially higher spending, lawmakers remain bogged down in an appropriations process that has left key funding decisions unresolved. With midterm elections still roughly five weeks away, that uncertainty may linger for a while.

As a result, the iShares US Aerospace & Defense ETF , whose top holdings include General Electric GE.N, RTX RTX.N and Boeing BA.N, has come under heavy pressure and is nearing bear-market territory.

The ETF ended Wednesday at $207.18, down 18.2% from its August 14 record closing high of $253.22 and 19.2% below its August 6 record intraday peak of $256.53. It notched its lowest close since December 2025 and now sits just shy of the 20% decline from its record closing high, a threshold typically used to define a bear market.

The retreat has been swift. ITA just posted its largest monthly decline since March and its worst quarterly drop since the first quarter of 2020, when markets were rocked by the pandemic-driven selloff. It's also down 3.1% since last Friday's close, leaving it on track for a record seventh straight weekly decline, according to LSEG data going back to 2006.

Momentum indicators are now suggesting the decline may be getting stretched. The weekly Relative Strength Index (RSI), which diverged negatively ahead of ITA's August highs, has fallen to 29.9, pushing it into oversold territory for the first time since October 2023, when it bottomed at 25.4.

Over the past decade, V-shaped reversals from sub-30 RSI readings have often coincided with important lows in ITA, putting bulls on alert for a potential tradable bottom. Even so, history offers a note of caution: during the COVID-driven market collapse, the weekly RSI fell as low as 9.4 before finally turning higher.

(Terence Gabriel)

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