Shares of aerospace- and defense-focused companies followed the geopolitical headlines again on Wednesday, rising in premarket trading after Iran launched missiles at two military bases housing U.S. troops in Iraq, and then settling back down as markets digested the news.
An attack Tuesday evening on Al-Asad and Erbil bases initially sent U.S. futures tumbling and oil sharply higher - and shares of Defense-focused companies surging amid concerns of a heightened and possibly prolonged military conflict between the U.S. and Iran.
Both had receded somewhat when the regular trading day kicked off on Wednesday as reports confirmed minimal injuries and no loss of life at both bases - as well as a general de-escalation in tensions on both sides.
The aerospace and defense group soared last Friday after the drone strike from the U.S. that killed Maj. Gen. Qassim Soleimani, leader of the Quds Force of the Islamic Revolutionary Guard Corps, and officials from several Iraqi militias, with Northrop Grumman in particular posting its biggest surge in five months.
That activity continued following Iran’s counter-response, with shares of General Dynamics GD, Northrop Grumman NOC, Raytheon RTN, Lockheed Martin LMT, L3Harris Technologies LHX and others and moving higher in premarket trading on Wednesday.
Northrop Grumman in particular gained more than 4% in premarket trading, though it later slipped back to $374.22 at the open, little changed from Tuesday's close.
The stock has gained more than 10% in 2020 and is in bull market territory, resting more than 70% above its low of $223.61 on Dec. 26, 2018.
With the stocks generally trading in line with escalating and easing tensions between the U.S. and Iran, analysts including J.P. Morgan’s Seth Seifman are recommending a more cautious approach to the group.
“An all-out war would bring much more spending but we believe both sides seek to avoid this, even if it is a possibility,” Seifman wrote in a report to clients on Monday before Tuesday evening’s Iranian counterattack.
“With so many unknowns, however, we are reluctant at this time to embrace last week’s U.S. strike as an opportunity to buy Defense stocks more aggressively with a longer time horizon,” the analyst added.
General Dynamics was little changed at $180.00 on Wednesday, as was Raytheon, which rested at $227 at the opening bell. Lockheed Martin traded at $413.67, and L3Harris was was little changed at $212.