Battle Against Terrorism Boosts Defense Sector

Until Sept. 11, 2001, it had been a long time since we'd had to think about full-scale war. Now the issue has returned to the forefront, and so has the defense sector. But the sector had already seen gains thanks to the "Bush effect," and the biggest beneficiaries of the post-Sept. 11 landscape weren't necessarily the usual suspects.

When the markets reopened after the attacks and troops were mobilizing for action in Afghanistan, investors had a knee-jerk reaction: They bought defense stocks across the board, which ultimately has proved to be a winning strategy.

Even though battle scenes in Afghanistan may no longer dominate the headlines, now there are other targets. The U.S. could be at just the early stages of a protracted and costly war on terrorism that may lead to further military actions in other "axis of evil" nations. Action against Iraq looks increasingly imminent. All of this defense spending and military buildup resemble the sector's last days of glory during the Reagan years. ...