US Defence stocks surged on Monday after the Wall Street’s renewed interest in the security industry following an attack on Israel by Gaza-based militant group Hamas. Geopolitical events often prompt investors to seek opportunities in the Defence sector, reflecting its sensitivity to global security concerns.
On Monday, gains in the S&P 500 Index were spearheaded by shares of major arms manufacturers, such as Northrop Grumman Corp, L3Harris Technologies Inc., Huntington Ingalls Industries Inc., Lockheed Martin Corp., and General Dynamics Corp. These companies witnessed substantial increases, with each stock surging by at least 8 per cent during the session, marking the most significant single-session gains in over three years.
Oil prices on Tuesday saw a relief following their previous-day surge of over 4 per cent. Traders exhibited caution while monitoring the possibility of supply disruptions.
The attack on Israel is adding to investors' concerns about geopolitical risks, alongside existing worries about rising interest rates and the impact of China's economic challenges.
“Hamas’ attack on Israel over the weekend will likely bring investor attention back to Defence stocks,” Truist Securities analyst Michael Ciarmoli wrote in a note to clients. The shares have been underperforming this year due to uncertainty about the US’s military budget, he added.
Amidst market dynamics, oil prices experienced a strong upswing, benefiting energy firms but adversely affecting travel-related stocks worldwide. On a broader outlook, businesses linked to Israel, such as chip manufacturers and software providers, observed declines in their stock values due to the ongoing conflict.
In U.S. markets, the S&P 500 Aerospace & Defence Index surged by 5.6 per cent, a strong uptrend after months-long decline. RTX Corp. and Leidos Holdings Inc. gained 4.6 per cent and 3.8 per cent, respectively. BAE Systems Plc in London saw a 4.5 per cent increase, its best day since August. However, U.S. shares of Israeli company Camtek Ltd slumped by 8.8 per cent, its worst performance since March 2022, while CyberArk Software Ltd. gained a modest 0.5 per cent.
On the other hand, Nvidia stocks also experienced sharp selling pressure after it canceled its AI summit in Israel scheduled for October 15-16.
Airline stocks tumbled on Monday as multiple companies suspended flights to Israel, causing the Bloomberg World Airlines Index drop to 2.6. Delta, United, and American Airlines shares all fell by over 4 per cent, while European carriers like Lufthansa and Air France-KLM also experienced share declines. Asian carriers, including Air India and Cathay Pacific, suspended service to Israel as well.
Indian markets encountered a minor decline on Monday as the geopolitical situation continues to toss the factors impacting the domestic economy into an uncertain sphere.