Defense Stocks Find Relief as Geopolitical Tensions Deepen

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(Bloomberg) -- The clouds hanging over defense stocks might finally be clearing.

It has been a strange earnings season for most defense and aerospace companies, which sold off despite steady numbers and confident outlooks. Analysts have offered all kinds of explanations for this puzzling investor behavior, ranging from a broader correction in the group’s valuation to rising yields and the market’s perception of an inverse relationship between defense and the 10-year Treasury. But further geopolitical tensions plus newly depressed share prices might be luring investors back into the group.

Earlier today, Iran stepped up its criticism of President Donald Trump, with Foreign Minister Mohammad Javad Zarif saying that if the U.S. continued to violate the nuclear deal, Iran would exercise its “right to respond in a manner of our choosing.” And the Pentagon said it was certain that Chinese persons were using lasers to interfere with U.S. military aircraft in Djibouti in the Horn of Africa.

The S&P 500 Aerospace & Defense Industry Index, a standard gauge for the group, ticked up as much as 1 percent on Thursday, snapping a 7-day decline. The index fell nearly 9 percent during those seven sessions through Wednesday, while the S&P 500 Index dipped 1.3 percent over the same span. A notable exception to the trend is Boeing, whose stock price has risen slightly since reporting results on April 24.

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