XAR - Lethality Over LeverageXAR - Lethality Over Leverage: Why Trump’s Buyback Ban is a Bullish Pivot for Defense Mid-Caps
The defense sector just experienced one of the most volatile 24-hour periods in its history. On January 7, 2026, President Trump sent the industry into a tailspin by threatening to ban dividends, stock buybacks, and executive pay over $5 million for contractors failing to modernize production. However, a rapid-fire follow-up proposing a record $1.5 trillion military budget for 2027—a massive leap from the current $900 billion—has fundamentally shifted the technical outlook for key ETFs.
Technical Analysis & Price Targets
ITA (iShares U.S. Aerospace & Defense)
As a market-cap-weighted fund, ITA is heavily exposed to "The Primes" (RTX, LMT, NOC). These companies were the primary targets of the buyback rhetoric, causing ITA to plunge before rebounding on the budget news.
Current Action: ITA is testing its 50-day Moving Average (approx. $246).
Bull Case: If it holds this support, the $1.5T budget news could drive a breakout above the $260 resistance.
Price Target: $275.00 by Q2 2026.
XAR (SPDR S&P Aerospace & Defense)
XAR uses an equal-weight strategy, making it the "hidden winner" of this policy shift. Smaller, R&D-heavy firms like Kratos (KTOS) and AeroVironment (AVAV) are better positioned to absorb a "modernization" mandate than the debt-heavy giants.
Current Action: XAR shows a strong bullish configuration with EMAs widening. RSI remains healthy near 65, avoiding "overbought" territory despite the rally.
Price Target: $310.00, representing a 15% upside from current levels as mid-caps capture the "Dream Military" expansion.
PPA (Invesco Aerospace & Defense)
PPA offers the most balanced exposure. While its RSI briefly touched "overbought" levels (80+) during the initial euphoria of the Iran/Maduro successes, the subsequent "buyback scare" provided a much-needed cooling period.
Current Action: Consolidation between $160 and $165.
Price Target: $185.00, contingent on the stabilization of capital allocation rules.
Key Takeaways
The "Modernization" Premium: Investors should rotate toward ETFs like XAR that favor companies focused on production capacity over financial engineering.
Geopolitical Tailwind: The military successes in Venezuela and Iran have provided the political capital for the $1.5 trillion budget, creating a high floor for the sector regardless of executive pay caps.
Volatility is the New Base: Expect heavy "headline risk" as the administration negotiates these terms with the Pentagon and defense large caps.
Stay nimble my friends!
