S&P 500 Pulls Back From Record Peak as Defense Shares Surge

US stocks moved lower on Thursday as investors stepped back from risk, weighing a mix of economic signals that offered little clarity on the direction of growth and inflation. The pullback came after equities recently touched record highs, prompting traders to lock in gains while reassessing the broader macro backdrop. At the same time, renewed optimism around defense spending helped lift military and aerospace stocks both in the US and overseas.

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The S&P 500 slipped about 0.2% in early New York trading after setting a fresh all-time high earlier in the week. Technology stocks led the decline, with the Nasdaq 100 falling roughly 0.7% as megacap names came under pressure. The retreat reflected growing caution among investors who are increasingly selective after a strong rally to start the year.

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Despite the broader market weakness, defense contractors stood out as clear winners. Shares of Lockheed Martin, Northrop Grumman, and Kratos Defense & Security Solutions climbed sharply after President Donald Trump signaled plans to significantly boost US military spending. According to his comments, the defense budget could rise to as much as $1.5 trillion by 2027, a move that would mark one of the largest expansions in military outlays in modern history.

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That prospect sparked a rally across the global defense sector, with investors betting on stronger long-term revenue visibility for companies tied to weapons systems, aerospace, cybersecurity, and advanced military technology. Defense stocks have increasingly been viewed as a relative safe haven, supported by geopolitical uncertainty and rising government commitments to national security.

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Meanwhile, economic data released this week painted a more complicated picture for the broader market. Some reports pointed to cooling momentum in certain parts of the economy, while others suggested demand remains resilient. This mixed backdrop has left investors unsure about how aggressive the Federal Reserve may need to be in the coming months, particularly as policymakers continue to stress their data-dependent approach.

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Bond markets reflected that uncertainty, with Treasury yields fluctuating as traders adjusted expectations for interest-rate cuts later this year. While inflation has eased from its peak, progress has been uneven, reinforcing the idea that the path toward lower borrowing costs may be slower than markets initially hoped. That dynamic has been especially challenging for growth-oriented technology stocks, which tend to be more sensitive to changes in yields.

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Adding to the cautious tone was a renewed sense of valuation awareness. With major indexes hovering near record levels, some investors are questioning how much upside remains in the near term, particularly if economic growth shows signs of softening. As a result, market participants have increasingly rotated toward sectors seen as offering more defensive characteristics or clearer earnings visibility.

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Beyond defense, other cyclical and industrial stocks showed mixed performance, reflecting uncertainty around global demand and trade conditions. Financials were also uneven, as banks and insurers balanced the benefits of higher interest rates against concerns about loan growth and credit quality should the economy slow.

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Looking ahead, investors are expected to remain highly focused on upcoming economic releases, including labor-market data and inflation indicators, which could influence expectations for monetary policy. Any signs of renewed price pressures or unexpected weakness in employment could quickly shift market sentiment.

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At the same time, corporate earnings guidance will play a critical role in shaping the next phase of market direction. With profit margins under scrutiny and input costs still elevated for some industries, investors are paying close attention to how companies navigate pricing power, wages, and capital spending.

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For now, Thursday’s decline appears less like a major shift in trend and more like a pause following a strong run higher. Still, the session underscored how quickly leadership can change, with defense stocks surging on policy expectations even as technology names struggled under the weight of valuation concerns and rate uncertainty.

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As markets move deeper into the year, investors may continue to favor a balanced approach, blending exposure to growth opportunities with sectors positioned to benefit from structural tailwinds such as government spending and long-term security priorities.