Defense on offense

As noted on Monday, looking at the stock market’s performance at the industry level can highlight pockets of strength and weakness that may not be apparent at the sector level. For example, while industrials was only the third-strongest S&P 500 (SPX) sector for the year as of midday on Tuesday, it contained three of the eight-strongest industry groups:

That includes Aerospace & Defense, which had the year’s fifth-highest industry return. That relative strength could be poised to continue in 2026, according to Morgan Stanley & Co. analysts. With air traffic trending positively, they see demand outpacing supply on the aerospace side of the equation, providing potential tailwinds for stocks like their top pick RTX (RTX).¹ Shares of the parts-and-services supplier—a company the analysts think has an edge because of its pricing power—hit a new record high on Monday, topping the previous record they set in October after releasing earnings:

The strategists see a different dynamic at work on the defense side of the industry—specifically, the idea that stocks in this group offer “good value” because they haven’t kept pace with the expansion of the US defense budget. Their top pick in this space, defense contractor Northrop Grumman (NOC), has bounced more than 4% since December 1, when it tested the support zone defined by its September 2024 and April 2025 highs:

Note: The Morgan Stanley & Co. strategists’ recent report also introduces their outlook for a new industry group, Government Services.

Market Mover Update: Immunone’s (IMNM) options volatility signals in recent weeks finally translated into a sizable stock move. Shares climbed more than 2% on Tuesday, following through on Monday’s 15.7% jump (see “Biotech buzz”).

Thanks to time decay, as of Tuesday the traders who sold more than 53,000 Avantor (AVTR) December $9 put options on November 24 were sitting on a profit even though the stock was trading lower than it was then (see “Large trader fingerprints”).

Today’s numbers include (all times ET): mortgage applications (7 a.m.), November retail sales (8:30 a.m.), business inventories (10 a.m.), Atlanta Fed Business Inflation Expectations (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: Cintas (CTAS), General Mills (GIS), Jabil (JBL), Micron (MU), Paychex (PAYX), Worthington Steel (WS).

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¹ MorganStanley.com. A Bullish 2026 Outlook; Ratings Re-Stack. 12/16/25.