The House passed a $1.15 trillion defense bill. I think Lockheed Martin (LMT) is due for a bounce, and tomorrow's earnings are the real test.

The House passed its version of the fiscal 2027 National Defense Authorization Act on Wednesday, 216 to 212. That authorizes $1.15 trillion in national security spending for next year, the biggest number this bill has ever carried. Defense stocks liked it. A lot.

Quick reality check before I get too excited. This is the authorization bill, not the check-writing bill. It sets policy and a spending ceiling, gives service members a 5% to 7% pay raise, and also votes to rename the Pentagon the Department of War, which is its own weird story for another day. The vote split almost entirely on party lines, and that had less to do with the topline number than with funding President Trump's Iran campaign, which is what actually cost the bill nearly every Democratic vote. The actual money still needs a full Senate vote, a conference committee to merge the House and Senate versions, and the president's signature. None of that has happened yet. The market does not wait for the paperwork, though, and today it voted with its wallet.

How the sector traded today

Huntington Ingalls (HII) led the group today, up 3.2%. Northrop Grumman (NOC) wasn't far behind at 2.6%. L3Harris (LHX) also cleared 2.5%. The rest of the primes moved in a tighter band: Lockheed Martin (LMT) and General Dynamics (GD) both added about 1.5%, while Boeing (BA) ran a little hotter near 1.9%. RTX brought up the rear, barely up half a percent on the day.

Why this bounce split the sector in two

Not every defense stock needs this bounce the same amount. Back in April, the whole sector took a beating during earnings season. Lockheed missed on revenue and its free cash flow swung negative. Its Aeronautics unit was the bigger problem, stuck with F-16 rework and C-130 supply chain issues all quarter. Northrop actually beat on both earnings and revenue and held its full-year guidance, but the stock fell anyway on a $1.8 billion free cash flow burn and a Space Systems charge tied to the GEM 63XL program. RTX beat on earnings but guided to an $850 million tariff hit. All three got hit the same week.

RTX and General Dynamics have already made up almost everything they lost that week and are trading close to their spring levels again. Lockheed and Northrop haven't. Lockheed is sitting around $515, down about 25% from its 2026 high near $692, and it has spent three months chopping sideways in the $500s without ever really breaking out. Northrop is even worse off, still down more than 30% from its own high near $774. Stocks that already healed don't need a new catalyst to move higher. It's the ones still stuck near their lows that a defense spending headline can actually push.

Northrop already got this week's test, and it barely mattered. The company reported second quarter results Tuesday morning, beating on both earnings and revenue and raising full-year guidance again, and the stock still fell that day on fresh margin pressure from the GEM 63XL and Stand-In Attack Weapon programs. Lockheed still has its shot tomorrow. Northrop already had its shot and the market shrugged.

Lockheed reports tomorrow, and that is the real test

We already previewed this week's earnings slate. Lockheed Martin reports Thursday morning before the open, with the Street looking for around $7.22 a share. Free cash flow needs to turn positive again after going negative last quarter. I also want to see the Aeronautics segment finally clear of the F-16 and C-130 problems that ate its profit in the first quarter, and if management raises full-year guidance instead of just holding the line, that's the clearest sign yet the quarter actually turned a corner. Clear those hurdles and a stock that is already cheap next to its peers on a forward basis has a real case to stop chopping and actually move. If Aeronautics is still a mess, today's move was just a headline trade and it fades fast.

My take

I think Lockheed specifically has a genuine bottoming setup here, not the whole defense sector as one trade. The bill by itself wouldn't move me much. But a stock that's been flat on its back for three months, walking into earnings less than a day later, is exactly the kind of setup where the next headline actually matters. Northrop is a different case. It already had its beat-and-raise moment this week and the stock barely budged, so whatever gets it moving again probably has to come from actually fixing the GEM 63XL and Stand-In Attack Weapon charges, not from one more good headline.

The wider defense list to watch

A few more names in the space, beyond the primes above:

• Textron (TXT), business jets and Bell helicopters, up about 1.3% today.
• Kratos Defense (KTOS), drones and unmanned systems, down today while most of the list was green.
• AeroVironment (AVAV), small drones, up about 1%.
• Ondas Holdings (ONDS), drone networking and defense systems, up about 4.4% today and near 28% over the past week after announcing $70 million in new defense orders, a company-specific catalyst rather than a bill reaction. We covered its own Lockheed Martin tie-up last month.
• Kraken Robotics (KRKNF), underwater and maritime defense robotics, flat today.
• Red Cat Holdings (RCAT), small military drones, down about 8.8% today, the weakest mover on this list.
• Leidos (LDOS), defense IT and intelligence services, up over 2%.
• Booz Allen Hamilton (BAH), government consulting, up 3.5%, the biggest mover here.
• Curtiss-Wright (CW), naval and aerospace components, up about 1.4%.
• Mercury Systems (MRCY), defense electronics, barely moved.
• Elbit Systems (ESLT), Israeli defense electronics, up 2.3%, relevant since the bill also expands US-Israel defense-tech cooperation, one of several flashpoints in a vote that was mostly a fight over funding the Iran campaign.
• Palantir (PLTR), defense and government software, actually down more than 6% today, a reminder it trades more on its own AI story than on defense budget headlines.
• Rocket Lab (RKLB), space and national security launch, up less than 1%, fresh off its third Space Force contract in two weeks.

Not all of these move for the same reason a defense bill passing moves Lockheed. A handful are pure budget plays. Palantir and Rocket Lab are really an AI story and a space story that happen to wear a defense ticker. Know which one you're actually buying.

Update, July 25: the setup worked

Lockheed beat on both lines Thursday morning, $7.94 a share against the $7.22 the Street wanted, on $20.1 billion in revenue, and raised full-year guidance. The stock closed Thursday at $568.59, up more than 10%, then added another 2.47% Friday to finish at $582.64. That is about 13% above where it was chopping sideways when this published, on a Friday when most of the market was selling anything cyclical.

The Northrop half of the call held up too. It beat, raised, and the stock still went nowhere, which is what the piece said would happen to a name that had already had its catalyst. Our Thursday piece covered where the rest of the money went while the Magnificent Seven fell.

Sources

• The Hill: House passes $1.15 trillion NDAA 216-212, July 22
• Congress.gov: H.R. 8800, National Defense Authorization Act for Fiscal Year 2027

This is general market commentary and reflects my own opinion, not investment advice. Always do your own research and consider speaking with a licensed financial professional before making any investment decision.