Aerospace and defense exchange traded funds (ETFs) may be stuck in bear market territory, but the situation has more to do with the broader stock market in general and not the sector itself.

As Scott Sacknoff on Seeking Alpha explains, the recent quarterly earnings from many companies in the sector have been up, with significant gains in revenue and earnings.

The mystery continues as valuations decline despite steady trends and strong business. The sector is about 21% off its October highs.

Why is aerospace in a bear despite all that?

Among the possible reasons could be:

  • Poor overall market conditions: Investors have pulled out of aerospace and defense to capture gains in other areas, and for now, aren’t comfortable with getting back in.
  • Boeing (BA): It’s one of the largest firms in the sector, and it has seen a 30% valuation decline.
  • The November presidential elections: Aerospace and defense/homeland security are shaky during these events.

The good news is that much of the negative news has already been priced into valuations and the defense budget should remain stable no matter who wins the Presidency.

  • FocusShares ISE-CCM Homeland Security (MYP), up 0.1% year-to-date
  • PowerShares Aerospace and Defense (PPA), down 16.2% year-to-date
  • iShares Dow Jones Aerospace And Defense (ITA), down 15.5% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.