Defense Stocks Need Delivery on Earnings to Keep the Rally Alive

An unhappy mix of frothy valuations and sluggish earnings delivery has caught up with defense stocks, straining the markets’ previous enthusiasm to buy into any dips.

While a Bloomberg index of European defense names has surged 80% this year, most of that was in the first half. Lately, moves have been sideways or erratic. Even regional pacesetter Rheinmetall AG has been flat since mid-June, while peer Hensoldt AG has slumped 25% from an October peak.