(Bloomberg) -- Shares of defense companies rallied as Citi said Democrats may not be able to make a case against more military spending as conflict in the Middle East ratchets up.
“Middle East tension could change the 2020 defense conversation,” potentially lifting a “sentiment overhang” for equities, analyst Jonathan Raviv wrote in a note. “As is always the unfortunate case, defense stocks tend to benefit from perceptions of heightened risk and the potential for geopolitical conflict,” he said.
On Thursday, a U.S. airstrike in Iraq ordered by President Donald Trump killed a key Iranian military leader, Qassem Soleimani, rattling global markets.
In Friday morning trading, the S&P 500 Aerospace & Defense Index rose as much as 1.5% to the highest intraday since Nov. 27. Top gainers included Northrop Grumman Corp., up as much as 5.6%, the most since July; Lockheed Martin Corp., higher by as much as 3.9% to a record high; Raytheon Co., which gained as much as 2.5%, also to a record, and L3Harris Technologies Inc., which climbed as much as 3.7%.
In December, Buckingham analyst Richard Safran said U.S. defense stocks may again outperform in 2020 as the group typically does well in an election year, largely due to a “flight to safety trade.” His favorites were Lockheed Martin, Northrop Grumman and L3Harris.
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