The defence industry companies work with governments providing them with military capabilities across land, sea, air, and electronic systems. They help support current and future defence and military needs. Defence stocks, especially those of U.S. companies, have seen an increase following the outbreak of the Hamas-Israeli armed conflict on 7 October 2023.
Defence Companies Whose Stock has Increased
Several defence stocks have increased since the start of the Hamas-Israeli armed conflict.
Northrop Grumman Corp (NYSE: NOC) is one of the largest defence contractors in the world. It was up 11.5% on Monday 9 October from the close of business on Friday 6 October. It continued to rise for that week until 13 October when it closed at $490.15, a 16% increase since 6 October.
General Dynamics (NYSE: GD) share price was up 8.4% on 9 October. It also continued to rise and closed at $243.04, a 10.5% increase since 6 October.
RTX Corp (NYSE: RTX) share price was up 4.6% on 9 October. It closed at $73.25 on 13 October, up 5% compared to the previous week’s close.
I’ll examine Lockheed Martin (LMT), looking at current and historical outbreaks of conflicts, cessation of conflicts, and its share price to determine the correlation between them.
Lockheed Martin (LMT)
Lockheed Martin (NYSE: LMT) is a security and aerospace company. It operates in the following core business areas: Aeronautics, Missiles and Fire Control (MFC), Rotary and Missions Systems (RMS) and Space. The company employs 116,000 people and has a market cap of $111B.
Additionally, it is one of the world’s largest defence contractors working mainly with the U.S. government, with multi-billion dollar contracts. Furthermore, it also works with governments from countries such as the United Kingdom, India, Australia, Saudi Arabia, the Republic of Korea and Israel.
Lockheed Martin Share Price and 9/11
If we go back to the time around 9/11, the share price for Lockheed Martin was $38.32 on 10 September 2001. The trading volume was 1,889,800.
Following the attacks on the Twin Towers on 11 September 2001, the stock market shut for 4 working days. This was the longest shutdown since the 1930’s.
On 17 September 2001, the stock market opened up again. The share price for Lockheed Martin closed at $43.95 which was a 14.7% increase in the share price. The trading volume was 12,632,100.
On 18 September 2001, President Bush signed a joint resolution “To authorize the use of the United States Armed Forces against those responsible for the recent attacks launched against the United States.” On this day, Lockheed Martin’s share price closed higher at $44.60. Trading volume was still high at 6,298,700.
Lockheed Martin Share Price and the U.S. Invasion of Afghanistan
On Sunday 7 October 2001, the U.S. invaded Afghanistan. On 8 October 2001, Lockheed Martin’s share price increased to $49.11. The trading volume was 5,549,600. To compare, the trading volume for the previous week on 1 October was 2,025,300.
Lockheed Martin Share Price and the U.S. Withdrawal from Afghanistan
The U.S. Army withdrew from Afghanistan on 30 August 2021. On that day, Lockheed Martin’s share price was $362.05. A month later on 30 September 2001, the share price had dropped to $345.10, a 5% fall in the share price.
Lockheed Martin Share Price and the Russian Invasion of Ukraine
The chart below shows an upward trajectory with the share price following the Russian invasion of Ukraine, on 24 February 2022. The share price increased by over 15% in the days after the invasion.
Source: Lockheed Martin share price, Hargreaves Landsdown
Lockheed Martin Share Price and the Outbreak of the Hamas-Israeli Armed Conflict
The chart below shows that following the outbreak of the Hamas-Israeli armed conflict, the share price was up 8.9% on 9 October. It also continued to rise and closed at $441.06, a 10% increase since 6 October.
In Summary
The above examples show a direct correlation between the outbreak or cessation of conflicts and the increase or decrease in the price of defence stocks.
When conflict occurs, governments reach out to their key strategic defence partners to supply them with military equipment and technology. Increased demand for their products and services leads to an increase in the share price of these companies.
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It is interesting to get confirmation in the correlation between the share price movement and certain type of geopolitical event, such as armed conflicts. After all such is the nature of business of Defence corporations and contractors.
Would be educational to explore other factors such as breakthrough R&D and scientific discoveries that cause significant share price movements?
Thanks. That’s a good idea for another blog post!