How has the Israel-Hamas crisis boosted US defence stocks?
When tensions rise, investments in defense companies tend to be the crowd-pleasers among investors. It seems that the Israel-Hamas showdown has inadvertently triggered a notable surge in the stock prices of US defense companies. Here's a quick breakdown of why it may have occurred.
Stating the obvious
The conflict prompted a swift and robust response from the United States to aid Israel. This support included the movement of warships and aircraft, the deployment of special operations forces, and the delivery of additional munitions. The commitment to ensuring Israel's military capabilities remained strong led to heightened demand for US defense products.
- The biggest supplier of arms to Israel, with 83% of imports coming from the US between 1950 and 2020.
- Since the 1940s, the United States has given more foreign aid to Israel than any other country in the world.
- Israel is the largest cumulative recipient of US assistance since World War II, with $236 billion in aid.
Qualitative Military Edge (QME)
A significant aspect of this surge is the US commitment to ensuring that Israel maintains a Qualitative Military Edge (QME) over potential adversaries. This concept, defined by Congress, entails Israel's ability to counter and defeat credible military threats while sustaining minimal damage. To achieve this, the US consistently provides advanced military technology and support to Israel.
Expedited weapons orders
To bolster Israel's defenses, the US encouraged defense companies to expedite existing weapons orders. This of course, included munitions for the Iron Dome air defense system, which had a crucial role in intercepting rockets fired by Hamas. The urgency in fulfilling these orders had a direct impact on defense companies' production and revenue.
Some of the missiles listed have components or technology sourced from the US, or have been developed in collaboration with US defense companies including:
- Arrow anti-ballistic missile (ABM)
- David's Sling/Magic Wand (land-based MRAD system)
- Iron Dome (land-based C-RAM and SHORAD system)
- Popeye (air-to-ground cruise missile, USAF designation: AGM-142 Have Nap)
Apparently someone has created a super hero for Israel named Iron Dome (which is also the name of their missle defense system). I uhh... I don't know, guys, might not be the best time/name. pic.twitter.com/R1pr56KFDv
— Social Worker lost at the end of the world, LCSW (@JdGordon13) May 31, 2021
These systems have had varying degrees of collaboration or support from the US in terms of technology transfer, funding, or joint development.
Market influence of Israel
Despite Israel's small geographical size, its geopolitical significance and the close US-Israeli relationship have contributed to its outsized influence on the US stock market. During times of regional conflict or heightened tensions, investments in the defense sector often gain favor among investors.
Stock performance of defense companies
The stock market responded positively to the increased military support for Israel. Major US defense companies saw significant boosts in their stock prices. For instance:
- Lockheed Martin: As one of the largest defense contractors globally, Lockheed Martin experienced an 8.0% increase in its stock price.
- Northrop Grumman: Notably, Northrop Grumman saw an 11.1% surge in its stock price, marking its largest percentage increase since March 2020.
- Raytheon Technologies (RTX): The stock of Raytheon Technologies, which produces most of the missile components for the Iron Dome system, rose by 4.0%.
- S&P 500 Aerospace & Defense: The broader sector, represented by the S&P 500 Aerospace & Defense index, increased by 5.6%.
The US Congress has been buying war stocks.
— Mats Nilsson (@mazzenilsson) October 9, 2023
Many bought defense company stock. Odd coincidence... pic.twitter.com/OVXGrQbZJw
In a nutshell, the Israel-Hamas conflict turned into a stock market spectacle. With the US ramping up support, defense companies racing to meet orders, and investors eyeing opportunities, it's a reminder that everyone has something to gain from even the most appalling travesties.