New York, Jan 11, 2026, 12:55 EST — Market closed
- Defense contractors turned to legal counsel following Trump’s linking of buybacks and dividends to delivery timelines
- Aerospace and defense ETFs rose Friday, with Lockheed and Northrop driving gains among large caps
- Traders await Pentagon guidance alongside the initial War Department review clock
Defense contractors are scrambling for legal counsel after President Donald Trump signed an executive order tying share buybacks, dividends, and executive pay to weapons delivery timelines, three sources familiar with the issue said. The sector handed back around $8 billion in dividends and about $10 billion in buybacks over the past year, according to Morgan Stanley data. Despite the move, aerospace-and-defense stocks ended the week higher: the iShares U.S. Aerospace & Defense ETF (ITA) jumped 2.4% on Friday, the SPDR S&P Aerospace & Defense ETF (XAR) gained 2.9%, Lockheed Martin (LMT) surged 4.7%, Northrop Grumman (NOC) climbed 4.8%, RTX (RTX) added 0.7%, and L3Harris (LHX) rose 3.1%. (Reuters)
Why it matters now: The White House is pressuring defense companies to ramp up production capacity and meet delivery deadlines, even if that means cutting back on returning cash to shareholders. Buybacks, which involve a company buying back its own shares to lift earnings per share and prop up the stock, are on the chopping block. (The American Presidency Project)
The order requires the Secretary of War to identify contractors providing “critical” weapons and gear that are underperforming yet still paying dividends or conducting buybacks within 30 days. Once flagged, those companies have 15 days post-notification to present a board-approved remediation plan. The War Department then has 60 days to enforce contract terms that limit buybacks and corporate payouts during these underperformance periods. It also directs the SEC chair to review Rule 10b‑18, the key “safe harbor” that shields firms from manipulation claims tied to stock repurchases. (The White House)
Even those backing tougher enforcement admit the real headache lies in definitions and who’s at fault. “The [executive order] is full of vagaries and ambiguity,” said Stan Soloway, CEO of Celero Strategies, pointing out the murky standards for measuring performance. Alan Chvotkin of Protorae Law noted that the government already has ways to reward or punish contractors, but the focus on buybacks and executive pay is a new, unusual twist. Pentagon spokesperson Sean Parnell emphasized the administration’s priority remains “our warfighters; not Wall Street.” (Fed News Network)
The broader market kept climbing even as the policy shock landed. The S&P 500 gained 0.65% on Friday, finishing at a record high, led by chipmakers. Investors brushed off a weaker-than-expected jobs report, instead focusing on upcoming clarity around Trump’s tariffs. (Reuters)
The coming sessions might hinge more on boardroom moves than market skirmishes. Traders are on alert for hints that major primes might halt buybacks or scale back dividend plans, while lawyers dig into what “underperformance” actually entails and if the Pentagon issues guidance that limits its reach.
There’s a risk, though. Contractors might claim delays stem from changing military needs, supply issues, and inconsistent funding. Trying to cancel contracts could drag out into lengthy legal battles. If buybacks and dividends halt just as budget battles heat up, the sector’s valuation could take a hit.
Next on deck is the War Department’s initial review window, set for 30 days after the order, which could flag any “underperforming” programs. Investors will keep an eye on potential SEC moves regarding buyback rules, along with how contractors discuss risk when they report earnings later this month.
