You ve probably witnessed the strange phenomena of watching a company s shares rise in the weeks ahead of a good earnings announcement, only to fall sharply once that news has been released. Stocks have a prescient way of anticipating the news, not reflecting it. From unemployment to new product development, stocks tend to move first.

It s for that reason anybody concerned not only about the economy, but national security, should take a look at the shares of many of the largest aerospace and defense contractors, many of which are soaring.

Great Guns

Boeing (BA) vs. General Dynamics (GD) vs. Northrop Grumman (NOC) vs. SPDR S&P 500 -- 6 months

With the first quarter is barely half over, the major averages are lower, but Boeing is up by 15%, Northrop Grumman is higher by 10% and General Dynamics gained 6%. All are trading near their yearly highs, yet below the peaks during the Bush administration. Lockheed-Martin has been a notable laggard, although shares which have been treading water since last summer could easily pop if the sector s overall strength continued.

Under the Radar

Kaman (KAMN) vs. HEICO (HEI) vs. Orbital Sciences (ORB) - 1 year

The smaller manufactures and contractors, whose fortunes, in many cases, are even more tied with defense spending, are largely also strong. Kaman (KAMN), which manufactures components for military aircraft such as Blackhawk Helicopters and the Air force s A-10, has risen 60% over the past year. HEICO Corporation, makes electronic systems used in radar, targeting and unmanned aircraft, and is higher by 30%. Rocket and satellite launch equipment manufacturer Orbital Sciences shares recently nipped a new yearly high; 44% of the company s revenue comes from the Department of Defense and other agencies.

Two popular ETFs, iShares Dow Jones US Aerospace & Defense and PowerShares Aerospace & Defensetrack the sector and help illustrate the strong outperformance. Defense stocks began to pull away last November and have continued to build on gains.

A Strong Defense

iShares U.S. Aerospace and Defense (ITA) vs. PowerShares Aerospace and Defense vs. S&P 500 -- 6 months

Top 10 Holdings: iShares U.S. Aerospace & Defense Fund (ITA):

Company	Ticker	%
Source: iShares.com
United Technologies	UTX	8.22
Boeing	BA	7.90
General Dynamics	GD	6.07
Lockheed Martin	LMT	5.92
Raytheon	RTN	5.83
Northrop Grumman	NOC	6.10
Precision Castparts	PCP	5.14
L-3 Communications	LLL	4.58
Goodrich Corp.	GR	4.05
Rockwell Collins	COL	4.02

Top 10 Holdings: PowerShares Aerospace & Defense (PPA):

Company	Ticker	%
Source: PowerShares.com
Boeing	BA	7.59
Honeywell	HON	6.43
United Technologies	UTX	6.40
Lockheed Martin	LMT	6.16
General Dynamics	GD	5.87
Northrop Grumman	NOC	4.79
Raytheon	RTN	4.67
Precision Castparts	PCP	4.50
L-3 Communications	LLL	4.11
ITT Corp.	ITT	4.01

It s a sector I ve observed, but unfortunately not participated in. Like many, I ve mistakenly held the belief that the current administration would be a drag defense stocks.

That conventional wisdom has been proven completely wrong, The president s budget calls for two years of spending nearly $160 billion on the wars in Afghanistan and Iraq, only about 10% less than Bush s war budget spent at the time of the Iraqi surge.

Now that anticipated spending could easily explain why the sector has pushed higher. Most of the larger players, such as Boeing and United Technologies, are also commercial aerospace contractors, likely benefiting from the relative economic stability. The strength could just be a speculative rotation into the sector like any other.

Yet it s also not hard to see that investors might be gravitating to defense stocks in anticipation of an escalated conflict in the Middle East.

Just last week, Iran, the spiritual and financial nexus of militant Islam, claimed the ability to enrich uranium to more than 80% purity, near the levels needed to construct a nuclear weapon. Secretary of State Hillary Clinton recently observed that the country was moving toward a military dictatorship. Their ambition to wield nuclear weapons is unlikely to be tempered by yet more economic sanctions.

Right now defense stocks are unquestionably a leading sector. Because equities are forward-looking indicators -- and because I care deeply about the safety of American citizens and service personnel -- I m almost afraid to ask why.