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Citi: Middle East tensions could boost defense stocks

Brittany De Lea

A U.S. airstrike that killed a top Iranian military official Thursday night could provide a lift to one sector of the market: defense stocks.

In a note to clients on Thursday, Jonathan Raviv, an analyst at Citi Research, noted that escalating tensions “tend to support robust defense spending.” He highlighted that risk of conflict erodes a case against heightened defense spending.

“And as is always the unfortunate case, defense stocks tend to benefit from perceptions of heightened risk and the potential for geopolitical conflict,” Raviv wrote.

OIL JUMPS AFTER US AIRSTRIKE IN IRAQ 

President Trump recently signed a defense budget for fiscal 2020 that allocates $738 billion, which was less than an initial $750 billion that the administration had called for early in 2019.

During Friday’s trading session, the S&P 500’s aerospace and defense ETF (XAR) was up more than 1 percent and it has increased nearly 3 percent over the past three days.

Also following the airstrike, oil prices surged over concerns regarding how increased tensions might affect supplies in the region. Brent crude was up nearly 3 percent during Friday’s trading session.

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Suggesting that tensions could ratchet up, Iran’s Supreme Leader warned on Friday that a “harsh retaliation” was in store following the airstrike, which killed Qassem Soleimani. Soleimani was the commander of the Iranian Quds Force, a wing of the Iranian Revolutionary Guard. Soleimani was first designated as a terrorist by the U.S. in 2005.

The administration is planning to send 3,000 more troops to the Middle East, officials told Fox News on Friday. The 82nd Airborne Division’s Deployment Ready Brigade was put on alert Friday and will be deployed to Kuwait.

The Department of Defense said Thursday night that the action was taken at the direction of the president and in order to protect U.S. personnel abroad by deterring future attack plans. According to the government, Soleimani was developing plans to attack American diplomats and service members in the region. He was previously behind other attacks on bases in Iraq throughout recent months.

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