While the budget was largely in line with expectations after the U.S. Defense Department unveiled plans last month to cut spending by $78 billion over the next few years, it provided more evidence that a weaker spending outlook was materializing for the sector, which benefited from steady increases following the September 11, 2001, attacks.
"The days of rapid growth of (weapons) acquisition spending are coming to an end," said Todd Harrison, senior fellow with the Center for Strategic and Budgetary Assessments in Washington.
Defense contractors "are going to have to consolidate on the gains they've made over the last decade, try to lock in some of the key programs that are already in production, and there'll be fierce competition for new start programs that do come along," Harrison added.
Shares of major defense companies were mixed on Tuesday, with industry leader Lockheed Martin Corp (LMT.N) up 0.8 percent to $81.60, Northrop Grumman Corp (NOC.N) up 0.2 percent to $68.85 and Boeing Co (BA.N) down 0.9 percent at $71.61. General Dynamics (GD.N) was up 0.7 percent to $77.37 and Raytheon Co (RTN.N) was down 0.3 percent at $50.69. The Standard and Poor's Aerospace & Defense index .GSPAERO was off 0.3 percent.