Furious Rally in US Defense Stocks Faces Earnings Reality Check

An increasingly unstable global geopolitical order has turbocharged stocks of military contractors in recent months. Now, with some of the biggest names in the industry set to report earnings this week, investors are eager for evidence that the rally is rooted in reality.

An index of aerospace and defense shares notched a 42% gain last year, more than double the returns of the technology-heavy Nasdaq 100 Index, amid expectations for heavier government spending on fighter jets and missiles, as well as newer military technology like drones and sophisticated software.