Defense gain after Iran strikes US forces

The sector has had a hot start to the year

Defense stocks were higher Wednesday after Iran launched more than a dozen missiles at U.S. forces stationed in Iraq in retaliation for last week's killing of Gen. Qassem Soleimani.

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Contractors Lockheed Martin, Northrop Grumman, General Dynamics and Raytheon gained as much as 4.5 percent ahead of the opening bell, before pulling back, amid speculation that the U.S. would increase military defense spending amid heightened tension with the Islamic Republic.

Relations between the two countries, strained the 1979 revolution and detention of U.S. hostages, have worsened since the U.S. pulled out of a nuclear pact in 2018 and imposed severe sanctions. Last week's killing of Soleimani, blamed for masterminding attacks on American troops in Iraq, prompted threats of "harsh revenge" from Tehran to which the Trump administration responded in kind.

“We believe there is enough political support to both increase the OCO [Overseas Contingency Operations] budget to fund higher operations spending over the next 18-24 months,” Stifel Managing Director Joseph DeNardi wrote on Monday, Jan. 6, noting that the military news site Defense One said the fallout from Soleimani's killing could “drive U.S. defense spending higher in 2021.”

Ticker Security Last Change Change %
LMT LOCKHEED MARTIN CORP. 460.07 -1.47 -0.32%
NOC NORTHROP GRUMMAN CORP. 474.68 +3.48 +0.74%
GD GENERAL DYNAMICS CORP. 292.68 +1.41 +0.48%
RTN n.a. n.a. n.a. n.a.
BA THE BOEING CO. 169.08 -1.48 -0.86%

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Defense stocks have had a red-hot start to 2020 with Lockheed Martin (+6.5 percent), Northrop Grumman (+9 percent), General Dynamics (+2.1 percent) and Raytheon (+3.1 percent) all outperforming the S&P 500’s 0.2 percent gain.

Boeing was lower on Wednesday after a Ukrainian International Airlines 737-800 jet crashed shortly after takeoff from Tehran's Imam Khomeini International Airport.