Assessment of the Impact of Geopolitical Risk Changes on Investments in the Energy Market and Defense Sector

• Ukraine proposed and revised a peace plan (adjusted from a 28-point framework to a 20-point version), planning to advance discussions with the U.S. by the end of the year and strive to “end the war by 2026” [1][2].
• The scale of military aid to Ukraine has decreased from an average of approximately $48.4 billion per year during 2022-2024 to about $37.8 billion in 2025 [2].

• Energy Sector (XLE) performance from October 1, 2025 to December 26, 2025: Price range was $42.35-$46.66, closing price during the period was $44.20 (change of -0.56%); 20-day average was $45.10, 50-day average was $44.65; average daily trading volume was approximately 28.72 million [0].
• Defense Sector (ITA) performance during the same period: Price range was $195.71-$220.91, closing price during the period was $218.07 (change of +4.73%); 20-day average was $208.27, 50-day average was $208.74; average daily trading volume was approximately 549,000 [0].
• Crude Oil Fund USO performance during the same period: Price range was $65.99-$74.25, closing price during the period was $68.48 (change of -5.74%); 20-day average was $69.56, 50-day average was $70.36 [0].
• Main indices’ performance over the past 30 trading days: S&P 500 was approximately +1.52%, NASDAQ about +1.42%, Dow Jones around +1.11%, Russell 2000 roughly +3.80% [0].

• LMT (Lockheed Martin): $483.03, 52-week range $410.11-$516.00, P/E ratio 26.88, market cap approximately $113 billion [0].
• RTX (Raytheon Technologies): $185.17, 52-week range $112.27-$188.00, P/E ratio 38.02, market cap approximately $247.9 billion [0].
• NOC (Northrop Grumman): $577.37, 52-week range $426.24-$640.90, P/E ratio 20.79, market cap approximately $82.4 billion [0].
• XOM (ExxonMobil): $119.11, 52-week range $97.80-$120.81, P/E ratio17.31, market cap approximately $502.3 billion [0].

• Relative to broader market: Defense sector ITA’s range gain over the past three months was approximately +4.73%, higher than the同期 gains of major U.S. stock indices; energy sector XLE closed down about -0.56% during the same period, underperforming the broader market [0].
• Valuation and volatility: The defense sector has an overall high P/E ratio (ITA about37.65), reflecting higher growth expectations or geopolitical premium; the energy sector has a relatively low P/E ratio (XLE about17.38), related to its cyclical nature [0]. In terms of volatility, the crude oil fund USO’s range daily standard deviation was1.63%, higher than energy ETF (XLE:1.11%) and defense ETF (ITA:1.25%) [0].
• Latest daily sector performance: The energy sector was the second worst-performing sector of the day, about -0.41%; the industrial sector (to which defense belongs) was about -0.19% [0].

• Event timeline: Revised peace plan announced on December24,2025; market trading around December28,2025 reflected the sentiment of “rising peace expectations”. After the peace plan was announced, crude oil fund USO was under pressure in the range (-5.74%), and geopolitical easing often puts downward pressure on energy prices [0]. The defense sector remained relatively strong in the range (+4.73%), reflecting long-term arms demand and structural support [0].
• Market sentiment and asset price reaction:

1. Energy and crude oil: Rising peace expectations usually weaken the “risk premium”, pushing crude oil and related ETFs under pressure; market concerns about supply disruptions and sanctions risks have cooled, leading to price corrections [0].
2. Defense and military industry: Despite expectations of marginal decline in aid amount, long-term orders and rebalancing demand for the military industry sector remain, and the P/E level shows that the market is willing to give a higher premium [0].

• Energy sector:
• Short-term pressure: The advancement of peace processes suppresses risk premium; crude oil and energy ETFs have underperformed over the past three months with higher volatility than the defense sector [0].
• Focus points: OPEC+ production policies, global demand recovery pace and inventory changes; if peace process is blocked or supply-side risks reappear, volatility may rise rapidly.
• Investment strategy: Short-term range fluctuation operations; focus on leading companies with stable fundamentals and high dividend yields (such as XOM).
• Defense sector:
• Medium to long-term resilience: Although the aid amount to Ukraine has decreased, regional security rebalancing and modernization upgrade demand support orders and capacity utilization [0].
• Focus points: Backlog orders of major companies, performance rhythm and capacity expansion; and marginal changes in allies’ defense budgets.
• Investment strategy: As an allocation target combining defensive and structural growth, suitable for long-term holding, but need to be alert to valuation correction risks (some leading companies have P/E ratios exceeding 30x).

• Scenario analysis:

1. Smooth peace process: Energy sector has limited upside potential or even continues to be under pressure; defense sector may fluctuate due to valuation correction from “aid peak has passed”.
2. Peace process blocked or conflict spills over: Energy and crude oil volatility rises again, defense sector benefits from expectations of additional orders and budget increases.

• Hedging and allocation: Consider “energy + defense” portfolio to hedge geopolitical risks; or use option structures (collar, protective put option) to control extreme volatility.

• Data over the past three months shows: Defense sector (ITA) has excess return attributes relative to the broader market (range gain +4.73%), crude oil and energy sectors (USO, XLE) are suppressed by peace expectations (range changes -5.74%, -0.56%) [0].
• Medium to long-term perspective: The order cycle and security reallocation demand of the defense sector support structural opportunities; the energy sector relies more on supply-side policies and demand recovery rhythm, and is more sensitive to geopolitical easing events.
• Operation suggestions: In the short term, moderately increase the weight of defense, and control positions in energy or adopt volatility hedging strategies; in the medium to long term, focus on capacity expansion of military industry leaders and dividends and balance sheet quality of energy leaders.

[0] Jinling API Data (Market & Financial Indicators/Technical Indicators/Python Calculations), including quotes, P/E ratios, market caps, range statistics for ETFs like XLE/ITA/USO and individual stocks LMT/RTX/NOC/XOM, as well as market indices and sector performance.
[1] USA Today – “Trump, Zelenskyy set for meeting at Mar-a-Lago over new Ukraine peace deal”（https://www.usatoday.com/story/news/world/ukraine/2025/12/26/trump-zelenskyy-meeting-mar-a-lago/87918257007/）
[2] Los Angeles Times – “Ukraine to give revised peace plans to U.S. as Kyiv readies for more talks with its coalition partners”（https://www.latimes.com/world-nation/story/2025-12-10/ukraine-to-give-revised-peace-plans-to-u-s-as-kyiv-readies-for-more-talks-with-its-coalition-partners）
[3] Yahoo Finance – “Can Oil Prices Rally in 2026? ETFs in Focus”（https://finance.yahoo.com/news/oil-prices-rally-2026-etfs-150000589.html）
[4] Yahoo Finance – “Crude Oil Prices Find Support from a Weaker Dollar and …”（https://finance.yahoo.com/news/crude-oil-prices-support-weaker-163149642.html）
[5] Forbes UK Advisor – “Best Defence Industry Stocks 2026: Compare Our Top Picks”（https://www.forbes.com/uk/advisor/investing/best-defence-stocks/）