The assassination of an Iranian general by U.S. forces in Iraq last week sparked major movement on the markets. Oil and gold prices rose on the news. Broader markets retreated in response to potential geopolitical instability, but there was one sector that popped in the aftermath.
Raytheon (NYSE:RTN), one of the top defence contractors in the world, rose 1.48% to close out the week on January 3. Back in the summer Raytheon agreed to merge with United Technologies.
Lockheed Martin (NYSE:LMT), another top defence contractor, saw its stock rise 3.6% on Friday. These stocks had huge years in 2019 on the back of a rising broader market and a big increase in the U.S. Defence Budget.
The United States is not the only state that has made big commitments to its defence budget. According to the Stockholm International Peace Research Institute (SIPRI), global military spending reached a new post-Cold War high, topping $1.8 trillion in 2018.
This trend is unlikely to subside as we move into the 2020s. Nations will seek to bolster their defence capabilities in an increasingly multipolar world. Investors need to prepare for this new reality.
Defence companies will see increasing demand for their services in this dangerous environment. Shares of Raytheon have climbed over 50% year over year. Lockheed Martin stock has increased over 60% in the same time span. These stocks will continue to thrive as defence spending rises.
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