Bullish Volatility from the White House? On Wednesday, the White House made a politically charged announcement where President Trump threatened to halt dividends and share buybacks from defense contractors unless they met his "demands". That announcement failed to dent the trend. ITA shares rallied in after-hours trading and gapped higher the next morning. The reason is simple: the market has adopted the "TACO" (Trump Always Chickens Out) trade. Over the past year, we've watched as these rhetorical threats have failed to materialize into lasting policy - particularly when national security and jobs are on the line. The result? Institutions are ignoring the noise and buying the fundamentals. Government Stake in a Defense Company Coming? Traders are finding signals in unexpected places on the potential future of the defense sector. On Kalshi - a federally regulated event-based prediction exchange - there's a contract betting on which companies the U.S. government will take a stake in before 2027. As of today, the top three names are: Lockheed Martin (LMT), privately held Anduril, and Boeing (BA). "Bets" on all three have spiked this week while gaining "trading" volume. This suggests that the "market" is seeing a potential repeat of what happened in 2025 when the government took partial ownership of U.S.-based rare earth companies MP Materials (MP) and USA Rare Earth (USAR). Those stocks exploded over 200% in just months. If similar stakes are taken in defense companies, the upside could be just as aggressive. Analyst Upgrades Expected on the Defense Stocks From a sentiment perspective, the defense sector still isn't a crowded trade. Despite the bullish price action, Wall Street hasn't fully bought in. The top holdings in ITA carry an average "Buy" recommendation of just 65%. One of the ETF's largest holdings, Raytheon, is rated a Buy by only 26% of analysts, even after rising 65% over the last 12 months. That makes it one of the most underloved outperformers in the market. As revenue growth ticks back into the double digits, upgrades will come fast. Raytheon alone accounts for nearly 17% of the ITA's weighting, so upgrades here will have a portfolio-wide impact. YOUR ACTION PLAN The Behavioral Valuation model is flashing green for defense. Strong fundamental growth, bullish technical trends, and low analyst buy-in point to sustained upside in 2026. A price target of $350 for the ITA ETF is a reasonable projection based on the current trajectory, representing 50% upside from today's levels. For investors looking to play this move, there are several angles. The most direct route is buying ITA outright for significant returns that are likely to outpace the S&P 500 and Nasdaq 100 indices. Long-term options on the ITA are thinly traded, with the furthest expiration currently only available through July 2026. This limits flexibility for options traders with the bid-ask spreads remaining quite wide, so slippage is a concern. For those seeking more specific exposure, Lockheed Martin and Raytheon remain two of the strongest names in the group with breakout technical setups and untapped upgrade potential. In a market desperately searching for direction, defense stocks are marching higher with clarity. This is a trend where you can trade with confidence. You can catch more of my insights on MTA Live and our YouTube Channel.
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