What happens when the U.S. government's budget deal gets done? For starters, it prevents another government shutdown. But the trickle-down effect gives a boost to defense stocks.
Look at Northrop Grumman (NOC) - Get Report , TheStreet's Jim Cramer pointed out on CNBC's "Stop Trading" segment. At the highs, shares were up about 4% Friday. Now up just 2%, the stock is outperforming the broader market on a volatile back-and-forth trading session.
Northrop is "at the epicenter" when it comes to defense spending, Cramer said. But it's not the only one that benefits.
Raytheon (RTN) - Get Report is up 2%, Lockheed Martin (LMT) - Get Report is up 1.5% and L3 Technologies (LLL) - Get Report is up 2.1%. Notably, all three stocks are off the highs, likely as a result of the broader market.
The deal could call for defense spending to increase by $80 billion this year and $85 billion the next year. When these deals get done, investors come "right back to defense stocks," noted Cramer, who also manages the Action Alerts PLUS charitable trust portfolio.
As government defense spending continues to go higher, so too do the estimates. And that's what's driving these names higher once again, he concluded.
Rocket fuel was present into the close, with Raytheon soaring 3% on the day to $204.52, Lockheed Martin closing up 2.13% to $341.42 and Northrop Grumman jumping 2.68% to $332.69.
At the time of publication, Cramer's Action Alerts PLUS had a position in RTN.