Most people gain nothing from the war or certainly from the larger regional conflict. However, few people do, most notably the executives of the companies that manufacture weapons. Following the attack of 7th October on Israel by Hamas and Israel’s more brutal attacks on the Gaza strip, the value of stocks in Lockheed Martin and Northrop Grumman has increased suddenly, which makes some sense. Conflicts, especially those involving American allies, fuel demand for the weapons these companies produce, such as artillery, fighter planes, and tactical missiles.
Some analysts surveyed by the business press expressed optimism for the long term, they were generally reticent about the short-term prospects of a defense stock rally.
According to AOAV (Action on Arms Violence), a Major defense contractor, Lockheed Martin Corporation, saw a notable increase in its daily returns from 0.85% on October 6th to 8.93% on October 9th. The October 9th spike in Lockheed Martin’s stock price was the company’s largest non-earnings day increase since March 2020. Similarly, there was a noticeable upward trend for RTX Corp and Northrop Grumman Corp, which increased from 0.56% and 0.75% on October 6th to 4.62% and 11.4% on October 9th.
Aside from the industry’s initial response to the attacks on October 7, defense and aerospace stocks have shown a sustained rise, following the historical pattern of these sectors rising during geopolitical crises. Between October 6 and October 26, Lockheed Martin saw a remarkable increase of more than 12%, partially caused by an earnings beat on October 17. On October 9, General Dynamics recorded its highest gain of almost 10%. Meanwhile, RTX made a significant comeback, rising 4.8% from October 6 to October 23, after trading close to its lowest point since February 2021.
According to the Stockholm International Peace Research Institution, the worldwide military spending last year on weapons, personnel, and other costs was around 2.2 Trillion USD, which is recorded as the highest level of spending in inflation-adjusted dollars. Generally, worldwide spending on military equipment is expected to cross 241$ billion, a 23 increase since last year, even during high inflation.
In 2016, the U.S. and Israel signed an agreement committing $38 billion in military assistance over the following ten years. Israel is required to spend $1.2 billion annually on cutting-edge military hardware from the United States.
Zacks Investment Research claims that the agreement improves the flow of American weapons to Israel and boosts the earnings of American defense companies in foreign markets.
In mid-October, the United States sent out two carrier strike groups. One in the Mediterranean Sea, off the coast of Israel, is the Gerald R. Ford strike group. According to the U.S. Naval Institute News, the Dwight D. Eisenhower strike group traveled through the Suez Canal and the Mediterranean. The two carrier groups in the Mediterranean Sea marked a historical staging of naval resources.
The Israel-Hamas conflict will significantly impact defense contractors despite analysts’ low expectations for financial gains. The Iron Dome, David Sling System, and missile defense batteries result from the partnership between RTX’s missiles and defense unit and Israel’s Rafael Advanced Defense Systems. In an interview with the Department of Defense on October 10, National Security Advisor Jake Sullivan stated that the United States started supplying Israel with more Iron Dome.
The defense industry has expanded, most likely as a result of Israel’s growing need for military hardware and the escalation of military tensions throughout the world. Because they are significant suppliers of military hardware to Israel, American arms manufacturers have reaped special benefits. As a result of U.S. military assistance and the provision of cutting-edge military hardware to Israel, the industry’s share prices have generally increased.
The author holds a Bachelor’s degree in Peace and Conflict Studies from Numl University Islamabad and is currently, pursuing an MPhil in International Relations at NDU.