When President Barack Obama said Tuesday that it was time to turn the page on the Iraq war, he left some uncertainty in the stock sectors that benefit most from a robust defense budget.

Defense stocks lost some ground Monday, after the White House said the president would deliver the announcement. The SPADE Defense Index, which tracks 50 companies tied to the industry, and the iShares Dow Jones U.S. Aerospace and Defense Fund (ITA) each lost 1.6%, just trailing the broader market.

Although the defense sector rebounded with the market Wednesday, the president s pledge to bring the 50,000 remaining troops home by the end of 2011 raised the question among analysts and investors of when the sector s party might start winding down. Could the companies that have grown fat on the wars in Afghanistan and Iraq be losing their best (and in some cases only) customer?

The president s move also brought about large debate on the course of operations in Afghanistan, which industry watchers say is much less certain than that of Iraq.

Already this year, defense companies have been hard hit. Companies like Alliant Techsystems (ATK), which has provided non-standard ammunition to the Afghan army, and General Dynamics (GD), which supplies communications, armored vehicles and ammunition, are down 21% and 12%, respectively, for the year.

Here's what two analysts had to say about where defense goes from here.

Who's Talking: Howard Rubel, Jefferies analyst

The Gist: The decline in defense spending is already underway, and some of it will be determined in the full year 2011 budget. Some details will hinge on how the U.S. proceeds in Afghanistan.

The rate-determining steps are the pace of the formation of an Iraqi government and the state of the country at the end of 2011 when the U.S. government decides if and how to withdraw from Iraq.

For now, the government is leaving around 50,000 troops, which means about $25 billion in defense spending to support and protect them and their efforts to safeguard the Iraqi people.

The current 2011 budget calls for spending in Afghanistan and Iraq on the order of $150 billion, while the 2012 budget calls for spending of just $50 billion. For 2011, $110 billion appears headed toward Afghanistan and $40 to $50 billion to Iraq, Rubel says. So if we continue to reduce troops in Iraq but Afghanistan proves to be problematic, then the full year 2012 budget of taking $100 billion out seems like a stretch, he says.

On the other hand, the government may cut the fat regardless. If you look at corporations that have thinned out their overhead, why shouldn t the Department of Defense look at how it purchases equipment and systems as well? Rubel says. In some cases it can do things better and differently.

Many of the companies involved have government contracts that span months or years not that they are written in stone. The government has the ability to cancel contracts if it wakes up and decides it doesn t need 32 widgets for instance it has the explicit right to terminate, Rubel says. However, unlike other industries, those contracted companies will be paid to wind down the business.

Who's Talking: Joseph Campbell, Barclays analyst

The Gist: The key question is whether the U.S. military is going to remain in Afghanistan.

The wars account for between 20% and 25% of the defense budget. The Iraqi war is effectively drawing down, and rapidly, and the Afghanistan war has reached peak levels of troops, but the prognosis is hazy.

I don t know whether we understand if it s more expensive or less expensive, but it s different, Campbell says.

In the Iraq war, vehicular-mounted troops drove around in cities, and the distance from the green zone to the war zone was short. By contrast, the fighting fronts in Afghanistan are helicopter rides away the reach, vastness of area and population are different and the war seems like less a consensus, he says. Secretary of State Hillary Rodham Clinton and Secretary of Defense Robert Gates have recommended a surge, and they believe it s a long-term commitment, while other advisors, like Vice President Joe Biden, have been more vocal in their suggestion that the war effort remain measured.

For now, with the Afghanistan war at its peak, the growth is over, the question is whether defense spending is flat, or flat to down, or down a lot and those are big differences for defense companies, Campbell says, If the wars end, it s open season in defense budget. The budget developed in 2012 for 2013 would probably show the biggest difference, he says.

Defense companies make their living by selling to different branches of the U.S. government, but also by exporting around the world. If other nations ramp up their defense outlays, they might partially offset a loss of U.S. dollars.