Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Traders are contending with heightened market volatility, driven by a confluence of factors including escalating global tensions, inflationary pressures, and shifting monetary policies. Recent geopolitical developments have underscored the strategic importance of the aerospace and defense sector.
The Dow Jones U.S. Select Aerospace & Defense Index* is up about 24% year to date as of June 3 and trading near a 52-week high.
The Direxion Daily Aerospace & Defense Bull 3X Shares (Ticker: DFEN) seeks daily investment results, before fees and expenses, of 300% of the performance of the Dow Jones U.S. Select Aerospace & Defense Index.
Below is a daily chart of DFEN as of June 6, 2025.
Source: StockCharts.com, May 23, 2025.
Candlestick charts display the high and low (the stick) and the open and close prices (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance, click here.
The aerospace and defense industry is known for its resilience during periods of uncertainty. Companies within this sector are experiencing renewed interest as nations reassess their defense strategies and budgets.
For example, NATO members are increasing defense budgets, with Germany deploying its first permanent foreign brigade since World War II in Lithuania, emphasizing a commitment to collective security. In the U.S., the proposed "Golden Dome" missile defense initiative underscores a renewed focus on military modernization.
Below are some potential bullish and bearish catalysts that traders interested in the aerospace and defense sector should keep an eye on.
Missiles, Money, Momentum: The Bull Case for DFEN
Increased Defense Spending and Geopolitical Tensions: Global defense budgets are spiking. Germany's recent military deployment in Lithuania and commitments to boost defense spending reflect a broader trend among NATO members to enhance military capabilities. Such initiatives may benefit U.S. defense contractors, potentially driving up the value of related equities in the short-term.
Strong Corporate Earnings and Contract Wins: Key players in the aerospace and defense sector just reported robust earnings. GE Aerospace announced a 38% increase in operating profit in the first quarter, driven by a 12% rise in orders. Similarly, RTX reported an 8% organic sales growth, with a notable 21% increase in commercial aftermarket demand. Lockheed Martin recently secured a $4.94 billion contract for Precision Strike Missiles, indicating strong demand for advanced weaponry.
Sector Momentum and Technical Breakouts: The aerospace and defense sector has shown resilience, with the Dow Jones U.S. Select Aerospace & Defense Index at multiyear highs. This momentum suggests investor confidence, potentially leading to further gains in the short-term.
Trade Turbulence Ahead? What Could Stall DFEN’s Ascent
Tariff Impacts and Trade Disruptions: Trade tensions pose risks to the sector. RTX cautioned that recent U.S. tariffs could reduce its 2025 profits by $850 million. While some relief has come from temporary tariff suspensions, the potential for renewed trade disputes remains a concern.
Market-Wide Bearish Sentiment: Broader market corrections or shifts towards risk-off sentiment can adversely affect the aerospace and defense sector. Economic indicators suggesting a slowdown or increased volatility could lead to reduced investor appetite for equities, potentially impacting the aerospace and defense sector.
Company-Specific Challenges: Individual companies face operational hurdles. For example, Boeing's efforts to stabilize 737 MAX production at 38 units per month highlight ongoing challenges in meeting demand and ensuring safety.
Trading the Sector with DFEN
The aerospace and defense sector stands at a pivotal juncture, influenced by geopolitical developments, corporate performance, and market dynamics. For traders with a strong conviction in the sector's short-term upward trajectory, DFEN offers a trading tool to potentially capitalize on these movements.
*Definitions and Index Descriptions
An investor should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing. The Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain the Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. The Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
The Dow Jones U.S. Select Aerospace & Defense Index (DJSASDT) is provided by S&P Dow Jones Indices LLC (the “Index Provider”). The Index attempts to measure the performance of the aerospace and defense industry of the U.S. equity market. The Index Provider selects the stocks comprising the Index from the aerospace and defense sector on the basis of the float-adjusted, market capitalization-weight of each constituent. Aerospace companies include manufacturers, assemblers and distributors of aircraft and aircraft parts. Defense companies include producers of components and equipment for the defense industry, such as military aircraft, radar equipment and weapons. One cannot invest directly in an index.
Direxion Shares Risks – An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with the Fund’s concentrating its investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause prices to fluctuate over time.
Leverage Risk – The Fund obtains investment exposure in excess of its net assets by utilizing leverage and may lose more money in market conditions that are adverse to its investment objective than a fund that does not utilize leverage. A total loss may occur in a single day even if the Index does not lose all of its value. Leverage will also have the effect of magnifying any differences in the Fund’s correlation with the Index and may increase the volatility of the Fund.
Daily Index Correlation Risk – A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index and therefore achieve its daily leveraged investment objective. The Fund’s exposure to the Index is impacted by the Index’s movement. Because of this, it is unlikely that the Fund will be perfectly exposed to the Index at the end of each day. The possibility of the Fund being materially over- or under-exposed to the Index increases on days when the Index is volatile near the close of the trading day.
Aerospace and Defense Industry Risk — The aerospace and defense industry can be significantly affected by government regulation and spending policies because companies involved in this industry rely, to a significant extent, on government demand for their products and services.
Industrials Sector Risk — Stock prices of issuers in the industrials sector are affected by supply and demand both for their specific product or service and for industrials sector products in general.
Additional risks of the Fund include Effects of Compounding and Market Volatility Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs Risk), Cash Transaction Risk, and Passive Investment and Index Performance Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.
