Best stocks: 2 stocks from the aerospace defense industry on the verge of breaking out

Industrials, particularly aerospace and defense, are leading the market, while utilities are losing favor after outperforming earlier in the year. Specifically, five utility stocks, including Southern Co. (SO), have fallen off the "Best Stocks in the Market" list, signaling a rotation towards higher-growth sectors like tech, consumer discretionary, and industrials, with semiconductors showing significant momentum. Within aerospace and defense, Axon Enterprise (AXON) and RTX Corp (RTX) are highlighted as breakout opportunities, with Axon raising revenue guidance to $2.6-$2.7 billion and RTX projecting 2025 revenues up to $84 billion.

Analysis

The market is exhibiting a clear rotational dynamic, shifting away from defensive sectors like utilities towards growth-oriented areas, particularly industrials and technology, as of mid-May 2025. Utilities, which demonstrated strength earlier in the year due to their defensive characteristics and perceived AI-related benefits, have lost favor; notably, Duke Energy Corp (DUK), American Water Works Co Inc (AWK), Southern Co (SO), American Electric Power Co Inc (AEP), and Consolidated Edison Inc (ED) were removed from a 'Best Stocks in the Market' list on May 13th after falling below their 200-day moving averages. This contrasts sharply with their performance through April 3rd, where utilities were down only 3% year-to-date on a total return basis compared to a 15% decline in the S&P 500. Since the market bottom on April 8th, technology stocks have surged approximately 30%, consumer discretionary and industrials are up 22%, and the VanEck Semiconductor ETF (SMH) recorded a 36.7% gain over 28 days, its best since 2011. Within the outperforming industrials sector, aerospace and defense stocks are prominent, with some, like GE Aerospace and Boeing, appearing technically extended with RSI readings near 80, despite positive catalysts such as Etihad Airlines' $14.5 billion order for 28 Boeing aircraft with GE engines. However, Axon Enterprise (AXON) and RTX Corp (RTX) are identified as potentially less extended breakout candidates. Axon has raised its full-year revenue guidance to $2.6-$2.7 billion, while RTX projects 2025 revenues up to $84.0 billion and EPS between $6.00-$6.15, with its stock challenging the $135 resistance level. This rotation underscores a shift in market sentiment from a defensive posture to one favoring momentum and growth.

Key Decisions for Investors

• Investors should acknowledge the ongoing market rotation out of defensive utility stocks and into growth-oriented sectors such as industrials and technology, particularly semiconductors, adjusting portfolio allocations accordingly if aligned with their risk tolerance.
• While the aerospace and defense sub-sector shows significant strength, caution is advised for names like GE Aerospace and Boeing which appear technically overbought in the short-term; consider awaiting pullbacks for more favorable entry points despite strong fundamental news.
• Axon Enterprise (AXON) and RTX Corp (RTX) present potential breakout opportunities with positive revenue guidance and projections; traders might consider AXON above the $700 pivot and RTX as it challenges $135 resistance, utilizing suggested risk management levels such as the $600 support for AXON and the rising 200-day moving average ($122) for RTX as a trailing stop.
• Monitor sector leadership and momentum indicators closely, as the current shift from defensive to growth assets may continue, but market character can change rapidly, necessitating dynamic list management and tactical adjustments.